What Is Margin in Investments?
Video Summary: While margin investing can double the gains on an investment, it also doubles the risk.
Margin is where an investor uses money that is borrowed from the brokerage firm to buy the investments in the account. Under margin rules, you are allowed to add an initial purchase basis, borrow up to 50% of the cost of a security. So if you're buying a $100 stock, you can actually borrow $50 of that $100 to buy the stock. It is a very risky strategy and one that is only appropriate for a limited number of people who understand high risk and leverage and are willing to take that kind of risk.