A margin is a term used to describe money borrowed from a brokerage to purchase securities. Investors who “buy on margin” via their brokerage borrow money from the brokerage to purchase securities. Margin is calculated as the difference between the value of securities purchased and held in the investor’s account and the dollar amount of funds lent by the broker to facilitate the purchase.
Investors who wish to “buy on margin” must have a separate account from their standard brokerage account to participate in these types of transactions. These types of accounts allow investors to purchase pools of securities with values that exceed the total dollar amount the investor could otherwise purchase with the balance of funds held in the account.
