Margin

Borrowing from your broker to buy securities, using the account as collateral.

Positions & Trade Mechanics Series 65 · Section 3

What is Margin?

Margin is credit extended by a broker, secured by the securities in the account. It is not a position type - it is a funding method. Buying on margin magnifies both gains and losses, and the broker charges interest on the borrowed balance. Under Reg T, an investor can typically borrow up to 50% of the purchase price of a marginable stock.

Margin: a worked example

With $10,000 cash you can buy $20,000 of stock on margin. A 10% rise turns $2,000 profit into a 20% return on your money; a 10% fall is a 20% loss - before interest.

What is the difference between Margin and Short Position (Short Selling)?

Margin is the loan; short is the direction of the bet. A short trade is funded on margin, but you can also be long on margin. Students collapse these two constantly.

Often confused with Short Position (Short Selling) - see Margin vs Short Position (Short Selling) side by side.

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More terms in Positions & Trade Mechanics

Long Position You own the asset and profit when its price rises. Short Position (Short Selling) You borrow shares, sell them, and profit if the price falls. Cash Account An account where every purchase is paid for in full, no borrowing. Leverage Using borrowed money to increase exposure relative to your own capital. Initial Margin (Reg T) The equity you must put up to open a margin position - generally 50%. Maintenance Margin The minimum equity percentage you must keep in a margin account. Margin Call A demand to add cash or securities after equity falls below maintenance. Short Squeeze Rising prices force short sellers to buy back, pushing prices higher still.

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