margin account

Margin Account

A brokerage account in which the broker lends the customer cash to purchase securities. The loan in the account is collateralized by the securities and cash. If the value of the stock drops sufficiently, the account holder will be required to deposit more cash or sell a portion of the stock.

Investopedia Commentary

In a margin account you are investing with your broker's money. By using leverage in such a way, you magnify both gains and losses.

Related Links

Margin Trading Tutorial

See also: Broker's Call, Buying Power, Call Loan, Call Loan Rate, Cash Account, Leverage, Margin

margin account

A brokerage account that permits an investor to purchase securities on credit and to borrow on securities already in the account. Buying securities on credit and borrowing on securities are subject to standards established by the Federal Reserve and/or by the firm carrying the account. Interest is charged on any borrowed funds and only for the period of time that the loan is outstanding. Compare cash account. Also called general account. See also initial margin requirement, maintenance margin requirement.

Are there any advantages to opening a margin account as opposed to a cash account? A margin account provides the flexibility to borrow funds using your securities as collateral. This can be an advantage if used properly. Funds from a margin loan can be used to purchase other securities, or they can be utilized for consumption. The risk is that a decrease in the market value of the account can create a margin call, which requires the deposit of additional securities, the deposit of cash, or the liquidation of some securities held in the account. George Riles, First Vice President and Resident Manager, Merrill Lynch, Albany, GA

Main Entry: margin account
Function: noun
: a client's account with a brokerage firm through which the client may buy securities on the firm's credit