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buying on margin
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buying on margin


  investment:  adding money borrowed for the short-term to your own money to purchase securities
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buying on margin margin buying buy on margin
Strongly Associated with:   margin call
Notes:
Example from the SEC (http://www.sec.gov/investor/pubs/margin.htm retrieved 10/7/15):

Let’s say you buy a stock for $50 and the price of the stock rises to $75. If you bought the stock in a cash account and paid for it in full, you’ll earn a 50 percent return on your investment. But if you bought the stock on margin paying $25 in cash and borrowing $25 from your broker you’ll earn a 100 percent return on the money you invested. Of course, you’ll still owe your firm $25 plus interest.

The downside to using margin is that if the stock price decreases, substantial losses can mount quickly. For example, let’s say the stock you bought for $50 falls to $25. If you fully paid for the stock, you’ll lose 50 percent of your money. But if you bought on margin, you’ll lose 100 percent, and you still must come up with the interest you owe on the loan.

Other Comments:

Margin calls worsened the stock market crash of 1929 when investors were permitted to borrow much more heavily than today. Today the Federal Reserve requires that most buyers invest at least 50% non-borrowed cash (equity) and some lenders have higher requirements. The Fed permits equity to drop to 25% due to market fluctuations; though many firms insist on 30-40% equity.
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Associated words [difficulty]:   buying on margin
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Most commonly used in these subjects:   Personal Finance, Business
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