margin

Margin

1. Borrowed money that is used to purchase securities. This practice is referred to as 'buying on margin'.

2. The amount of equity contributed by a customer as a percentage of the current market value of the securities held in a margin account.

3. In a general business context, the difference between a product's (or service's) selling price and the cost of production. 4. The portion of the interest rate on an adjustable-rate mortgage that is over and above the adjustment-index rate. This portion is retained as profit by the lender.

Notes:

1. Buying with borrowed money can be extremely risky because both gains and losses are amplified. That is, while the potential for greater profit exists, this comes at a hefty price -- the potential for greater losses. Margin also subjects the investor to a number of unique risks such as interest payments for use of the borrowed money.

2. For example, if you hold futures contracts in a margin account, you have to maintain a certain amount of margin depending on how the market value of the contracts change.

3. Gross profit margin (which is the difference between revenue and expenses) is one measure of a company's performance.

4. The formula for calculating the interest rate on an adjustable-rate mortgage is the adjustment-index rate (e.g. Treasury Index) plus the percentage of the margin. For example, if the Treasury Index is 6% and the interest rate on the mortgage is 8%, the margin is 2%.

See also: Adjustable-Rate Mortgage - ARM, Broker's Call, Buying Power, Call Loan, Equity, Initial Margin, Maintenance Margin, Margin Account, Margin Call, Minimum Margin, SPAN Margin, Treasury Index

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Margin

Allows investors to buy securities by borrowing money from a broker. The margin is the difference between the market value of a stock and the loan a broker makes. Related: Security deposit (initial). In the context of hedging and futures contracts, the cash collateral deposited with a trader or exchanged as insurance against default.

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margin

1. The amount of funds that must be deposited when purchasing securities. See also initial margin requirement.

2. The equity in an investor's account. See also maintenance margin requirement.