Margin Account
A margin account is a brokerage account that lets investors borrow money from the broker to buy securities, using their holdings as collateral.
In a regular cash account, you can only buy securities with money you have deposited. A margin account adds a credit line: the broker lends you part of the purchase price, and the securities in your account serve as collateral. Margin accounts are also required for short selling and for many options strategies.
Borrowing on margin magnifies results in both directions. If prices rise, your percentage gain on your own money is larger. If prices fall, your losses grow just as fast, and you can lose more than you originally invested. You also pay interest on the borrowed amount.
Under US rules, investors can generally borrow up to 50% of the purchase price of eligible stocks, and must keep a minimum equity level in the account afterward, at least 25% under FINRA rules and often more under broker policies. Falling below that level leads to a margin call.
Example: you have $10,000 and borrow $10,000 to buy $20,000 of stock. A 10% price rise adds $2,000, a 20% gain on your money. A 10% drop costs $2,000, a 20% loss, plus interest.