Definition of Margin account:
A type of brokerage account which allows investors to purchase securities with borrowed funds, requiring a deposit of cash or assets as collateral to cover the risk on such transactions.
Cash or securities deposited by a speculator with a stockbroker as the margin requirement for the securities purchased with a loan advanced by the stockbroker. The value of a margin account is usually one-half of the loan.
A margin account is a brokerage account in which the broker lends the customer cash to purchase stocks or other financial products. The loan in the account is collateralized by the securities purchased and cash, and comes with a periodic interest rate. Because the customer is investing with borrowed money, the customer is using leverage which will magnify profits and losses for the customer.
If an investor purchases securities with margin funds, and those securities appreciate in value beyond the interest rate charged on the funds, the investor will earn a better total return than if they had only purchased securities with their own cash. This is the advantage of using margin funds.
How to use Margin account in a sentence?
- Margin increases the profit and loss potential of the trader's capital.
- A margin account typically allows a trader to trade other financial products, such as futures and options (if approved and available with that broker), as well as stocks.
- When trading stocks, a margin fee or interest is charged on borrowed funds.
- He had a margin account which let him borrow up to half the cost of the stock he wanted.
- A margin account allows a trader to borrow funds from a broker, and not need to put up the entire value of a trade.
Meaning of Margin account & Margin account Definition