Margin
TradingDefinition
Borrowed money used to buy securities. Your broker lends you cash collateralized by the value of your account; you pay interest on the loan. Amplifies both gains and losses. Reg T allows up to 50% margin on most stocks (you can buy $200 of stock with $100 of your own money plus $100 borrowed).
If your account value falls below the maintenance requirement, you get a margin call: deposit more cash or have your broker liquidate positions at the worst possible time. Margin debt at market peaks is a leading indicator of forced selling on the way down.
If your account value falls below the maintenance requirement, you get a margin call: deposit more cash or have your broker liquidate positions at the worst possible time. Margin debt at market peaks is a leading indicator of forced selling on the way down.
Example
You have $50K cash and use 2x margin to buy $100K of stock. The stock rises 20% → your $100K becomes $120K, your equity becomes $70K (40% gain). The stock falls 20% → equity becomes $30K (40% loss). At enough leverage you can be margin-called.