Define Buying on Margin: Leverage, Risk and Rules
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Key terms
- MarginBorrowed money from a broker to purchase securities. Amplifies both gains and losses. Requires a margin account and maintaining minimum equity levels to avoid margin calls.
- Risk ToleranceYour ability and willingness to lose some or all of your original investment in exchange for potentially greater returns. Depends on factors like age, income, and financial goals.
- Margin CallA broker's demand for additional funds when a margin account falls below the required minimum value. If not met, the broker can sell securities to cover the shortfall.
- Profit MarginA financial metric that measures what percentage of revenue a company keeps as profit after accounting for costs and expenses. There are several types of profit margin, including gross margin, operating margin, and net margin, each measuring profitability at different levels of the business. Higher profit margins generally indicate a more efficient and financially healthy business, though acceptable margins vary significantly by industry.
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