buy on margin

buy on margin

To buy securities by putting up only a part, or a margin, of the purchase price and borrowing the remainder. The loan is usually arranged for by the investor's broker. The securities must be kept in the account. See also initial margin requirement, maintenance margin requirement.

What are the risks inherent in buying securities on margin? Here one borrows money from a broker to buy securities, using securities as collateral so that more can be bought at one time. It's called leveraging, and it is wonderfulif it's an up market! You make more money because you put more money out at risk. (It's wonderful for your broker too; the broker makes more in commissions and charges you interest. Your broker also canand doesloan out the stocks you hold in your margin account, getting in return an interest-free deposit equal to the value of your shares on loan.) But, if the market goes against you, it can be just awful, because you owe the borrowed money in full, with interest, no matter what happens to the price of the stock or bond. TIP: Margin is a little like booze: the more you drink, the better you feeluntil the morning after. Thomas J. McAllister, CFP, McAllister Financial Planning, Carmel, IN