Margin refers to the practice of borrowing money from a broker in order to purchase or sell securities. It’s a method to increase your purchasing power. When a trader uses margin, they borrow money from their brokerage firm to purchase more shares than they could with cash alone. The account’s holdings are frequently used as collateral for the loan.
The primary benefit of investing on margin is the opportunity to earn more money. If the value of the securities you purchase on credit rises, your gains could be much greater than if you had invested your own money.
However, purchasing on credit comes with increased risk. If the value of the securities you purchased with borrowed funds falls, you will receive a margin call. In order to repay the loan to your broker, you must either add more funds to your account or sell some of the assets in your account. If you are unable to do so, your broker may sell your securities to repay the loan without your permission.