Trading on margin is a way of increasing the impact of your investment dollars, because you only put up part of the money to buy shares of stock. Margin trading allows you to invest less and make just as much money. When you buy stock on margin, you multiply your risk.

You also have to follow some strict rules set up by government agencies, stock exchanges and your broker. You get the rest of the money by borrowing it from your broker. This costs a little extra, because brokers charge interest when they loan you money. Before you can try your hand at buying stocks on margin, you have to open a brokerage account that lets you borrow money from the broker.

This kind of trading account is called a margin account, and it comes with strings attached. Since the broker is loaning you money, your credit is checked and you have to sign a margin agreement that states the terms and conditions for borrowing the money.

It also turns all account assets into collateral for the money your broker lends you. Brokers can ask for more. In fact, if a stock looks especially risky, a broker might refuse to let you buy it on margin.

Sometimes brokers want more. If shares bought on margin lose value, you might get a margin call. Stock markets like the New York Stock Exchange say you must keep a minimum maintenance margin of 25 percent. This means if your equity in the stock dips under 25 percent because the stock price falls, your broker must act.

Margin Trading: What Is Buying On Margin?

Once the equity falls below 25 percent, brokers can sell the stock without telling you to recover the money you borrowed. Definition "Margin" is the money you contribute to buy shares on margin.

Margin Account Before you can try your hand at buying stocks on margin, you have to open a brokerage account that lets you borrow money from the broker. Margin Calls If shares bought on margin lose value, you might get a margin call. Margin -- Borrowing Money to Pay for Stocks. How Much Money Do I Need in an Investment Account to Short Sell?

How to Calculate the Percentage Return on Investment If You Bought Stock on Margin How to Calculate Maintenance Margin Day-Trading Margin Vs.

Is a Margin Account Required for Trading Options? How Do Short Sales on the Stock Market Work?

Can I Secure a Loan With Stock? How to Buy Stock on Credit. What Are the Benefits of Portfolio Margin Accounts? What Is a Bond Margin? Do I Keep Dividends in Margin Trading? More Articles You'll Love.

What does buying stock on margin mean

SEC Stock Trading Restrictions. How to Calculate the Percentage Return on Investment If You Bought Stock on Margin. How to Calculate Maintenance Margin.

What does stocks on margin mean

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