Margin account

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Related to Margin account: margin call, short selling

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 ?
Minimum initial deposit of P200,000 is required to open a margin account.
Consistent with our analysis of Figures 1 and 2, we find that the average margin account has been growing through time and that the distributions of the variation margins are nonstationary.
In periods of rising stock markets, investors borrow more margin loans and buy more stocks in their margin accounts, inducing higher stock prices and subsequently qualifying the borrowers for additional margin loans.
Answer--A margin account enables an investor to borrow cash readily, with a minimum of paperwork and without the need to sell or transfer stocks to finance the loan.
All shares that would not be loanable but for the fact they are held in a margin account under account documentation authorizing share lending;
An official at the national consumer center said customers ''should check currency traders' credibility and financial positions before opening a margin account.
A margin call is when a broker's demand on an investor to deposit additional money or securities so that the margin account is brought up to the minimum maintenance margin.
Your broker might obtain the stock from the firm's inventory, from another broker or from another customer's margin account," says John Guy, president of Wealth Planning & Management L.
By transferring $5,000 from the margin account to the mutual fund, she turns the interest on the margin account into investment interest expense.