Margin account

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Related to Margin Accounts: Margin trading, Buying on Margin

Margin account (stocks)

A leverageable account in which stocks can be purchased for a combination of cash and a loan. The loan in the margin account is collateralized by the stock; if the value of the stock drops sufficiently, the owner will be asked to either put in more cash, or sell a portion of the stock. Margin rules are federally regulated, but margin requirements and interest may vary among broker/dealers.

Margin Account

A brokerage account in which the brokerage lends money to the account holder, which the account holder then uses to buy securities. That is, a margin account is one in which an investor makes investments with borrowed money. This opens up investment opportunities that an investor might not otherwise be able to afford. More importantly, however, a margin account increases both gains and losses for the investor. Regulation T and other regulations require margin accounts to have money or securities kept as collateral. See also: Margin call, Maintenance.

margin account

A brokerage account that permits an investor to purchase securities on credit and to borrow on securities already in the account. Buying securities on credit and borrowing on securities are subject to standards established by the Federal Reserve and/or by the firm carrying the account. Interest is charged on any borrowed funds and only for the period of time that the loan is outstanding. Also called general account. Compare cash account. See also initial margin requirement, maintenance margin requirement.
Are there any advantages to opening a margin account as opposed to a cash account?

A margin account provides the flexibility to borrow funds using your securities as collateral. This can be an advantage if used properly. Funds from a margin loan can be used to purchase other securities, or they can be utilized for consumption. The risk is that a decrease in the market value of the account can create a "margin call," which requires the deposit of additional securities, the deposit of cash, or the liquidation of some securities held in the account.

George Riles, First Vice President and Resident Manager, Merrill Lynch, Albany, GA

Margin account.

Margin accounts are brokerage accounts that allow you a much wider range of transactions than cash accounts.

In a cash account you must pay for every purchase in full at the time of the transaction. In a margin account, you can buy on margin, sell short, and purchase certain types of derivative products.

Before you can open a margin account, however, you must satisfy the firm's requirements for margin transactions. You must also agree in writing to the terms of the account, and make a minimum deposit of at least $2,000 in cash or qualifying securities.

If you buy on margin or sell short, you pay interest on the cash or the value of the securities you borrow through your margin account and must eventually repay the loan.

Because both types of transactions use leverage, they offer the possibility of making a substantially larger profit than you could realize by using only your own money.

But because you must repay the loan plus interest even if you lose money on the investment, using a margin account also exposes you to more risk than a cash account.

References in periodicals archive ?
We document that underwater margin accounts are much more frequent for house accounts than for customer accounts, suggesting that the major source of default risk is proprietary trading.
The evidence indicates that margin debt borrowers borrow more and buy more stocks in their margin accounts as stock markets rise, and sell stocks in their margin accounts to reduce their margin debt when stock markets decline.
liquidate the margin account. By contrast, collateral arrangements
However students still need the opportunity to understand the three basic elements of hedge fund investing: (1) a special knowledge about the relationship between two investment situations; (2) the use of simultaneous buy and sell transactions to reduce investment risk: (3) and the use of increased leverage through margin accounts. A fourth (4) instructional element is also valuable: learning how hedges can go bad.
During the programme, the participants were taken through an overall introduction into the securities industry, and discussed the servicing and maintaining of customer accounts, equities, the fundamentals of debt, exchange markets, the over-the-counter market, margin accounts, basic option positions and economics and securities analysis.
The program also provided comprehensive training on investment banking, securities laws and regulations, trading procedures, margin accounts, customer accounts and direct participation programs.
You will likely have more money tied up in financing inventory, in accounts receivables and in margin accounts if you are a grain merchandiser.
For example, if CDOs are used as collateral for a hedge fund short position, a drop in CDO value ripples onto the margin accounts for short positions.
When the prices of stocks purchased by investors in margin deals decline, the investors are required to deposit additional money to bring their margin accounts up to the necessary level.
This means that at the close of trading each day, the clearinghouse for the exchange calculates the gains and losses on all open positions and transfers those gains or losses into or out of all margin accounts. Profits may be withdrawn by an investor, but losses are deducted immediately from the investor's account.
They will balance attractive features such as dividends and user-friendly buy and hold procedures against less attractive features such as potential difficulties of selling-off "up" securities in illiquid markets and the opportunity cost of high balances in margin accounts with no margin calls, discussed next.