The National Directory of Certified Public Accountants

Ask A CPA - Investments & Financial Planning

In The Stock Market , What Does Margin Mean ?

In the stock market "margin" refers to buying of stock or other investments on credit. The use of margin permits you to leverage the assets in your portfolio to increase the amount of securities you may own. This in turn increases the potential return on your investments in a bullish rising market. The use of margin also increases investment Risk since in a declining market the potential loss is similarly magnified by this leverage. Investors trading on margin must be prepared to deposit additional cash or securities to meet margin calls should the prices of stocks held in their accounts decrease. If the taxpayer is unable to make the deposit, the brokerage house has the right to sell the collateral securities and charge any market loss to the taxpayers account. You should make sure you do not over extend yourself when using margin to buy stocks. The use of margin also results in additional costs to you since interest is charged on your margin balance.

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