What is a Margin?

There are many ways in which you can provide financing for your stock investments. One of them is referred to as margin. This method allows your broker to provide you with no more than 50% of the price of the stock.

So, let's say that you have $10,000 for investing. Under margin conditions you can buy stock worth $20,000. When you sell the stock you are required to repay the money your broker has lent you. Interest is owed on the loan.

However, if the price of the stock happens to fall 75% below the price on which you have acquired the stock, your broker has the right to make you sell the stock and give him/her the money you owe on the loan. If you don't want to say goodbye to the stock you can deposit more money in the account.

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