Finance Dictionary
Margin
Definition
The money borrowed from a brokerage firm to purchase an investment.
Deep Dive
In finance, "margin" refers to the money borrowed from a brokerage firm by an investor to purchase securities, using their existing investment portfolio as collateral. This practice, known as margin trading, allows investors to buy more shares than they could with their available cash, thereby leveraging their investment. The initial margin is the percentage of the purchase price that the investor must pay with their own funds, while the remaining balance is borrowed from the broker, subject to an interest charge.
Examples & Use Cases
- 1An investor uses $5,000 of their own money and borrows another $5,000 on margin to buy $10,000 worth of stock, hoping for a larger profit than if they only used their cash
- 2A stock market downturn causes an investor's leveraged portfolio to drop in value, leading the brokerage firm to issue a margin call
Related Terms
Margin CallLeverageCollateral