What Does it Mean to Buy Stocks on Margin?
Buying stocks on margin is the purchase of stocks through use of the investor’s own money as well as money that she has borrowed through her margin account. If an investor has a margin account, she can borrow up to 50 percent of the investment in a particular stock.LeverageIn the world of business and investment, “leverage” is the term used for the practice of borrowing money to magnify gains (or losses) on an investment.Leverage in Other Types of InvestmentFor many investors, the example closest to home is a purchase of real estate, in which a large percentage of the money was borrowed from a bank.ConsiderationsMargin is risky because if a stock falls, an investor will potentially owe more money than she initially invested. In that case, the investor may receive a margin call from her broker if a stock begins to drop.
