What is Margin?
The collateral that an investor has to deposit with their broker to cover credit risk
What is the definition of margin?
Margin trading involves...
What is- using borrowed funds from a broker to trade financial assets.
This is is typically 50% of the purchase price of the stock that must be deposited.
What is the initial margin requirement?
This minimum amount is at least $2000
What is the minimum margin for opening a margin account?
Name one advantage of margin trading
What is- One advantage of margin trading is the potential for greater profits due to increased purchasing power?
This occurs when an investor borrows money from a broker to purchase an asset
What is buying on margin?
a brokerage account that allows investors to borrow funds to purchase more securities than they could with their available cash.
What is a margin account?
the cash or securities deposited in a margin account that secures the loan for purchasing securities
What is collateral?
name the risks associated with margin calls
What are- Margin calls can force investors to deposit more funds or liquidate their positions at unfavorable prices
Name a disadvantage of using margin
What is- disadvantage of margin trading is the potential for greater losses if the value of securities decreases?
The difference between margin and marginable securities
What is- Margin refers to borrowed money from a broker, while marginable securities are the assets that can be used as collateral for margin trading
If an investor does not ________________, the brokerage can liquidate their securities without their consent
What is meet a margin call?
charged on the borrowed funds in a margin account and must be repaid, impacting overall investment returns.
What is interest?
This occurs when a broker sells an investor's securities to cover a margin loan without the investor's approval.
What is a forced liquidation?
Margin trading can incur ____ and _____ _____ on the borrowed funds used to purchase securities
what are fees and interest charges?
allows investors to purchase more securities than they could with their own capital alone
How does margin amplify investment gains?
a demand from a broker for an investor to deposit additional funds into their margin account due to a decrease in equity
What is a margin call?
the minimum account balance that must be maintained to avoid a margin call
What is the maintenance margin?
How margin trading can lead to a domino effect among investors
What is- A significant margin call from one investor can lower the value of collateral for others, potentially triggering their margin calls
Name a reason that investors might avoid margin trading
What is- Investors might avoid margin trading due to the risk of margin calls and forced liquidations?
Explain how margin trading might be considered risky
What is- Margin trading is risky because it can amplify both gains and losses, leading to potential significant financial losses
increases buying power but also magnifies potential losses.
What is Leverage?
margin trading increase purchasing power in this way:
What is- allows investors to borrow funds to buy more securities than they could with their own available cash
Types of stocks that may be deemed too risky by brokers and not allowed for margin trading.
What are penny stocks and IPOs?
Explain the flexibility of margin loans compare to other loans
What is- Margin loans often have less rigid repayment schedules and can be open-ended until the securities are sold?