Introduction
Margin is the loan availed by a broking institution in order to make investments in equity instruments and other similar options. Margin is defined as the difference between the amount of money borrowed from the brokerage firm and the total worth of the securities being held by an investor in his or her investment account.
The act of buying securities on margin is a common practice these days. This buying on margin activity includes investing in securities and capital assets wherein the buyer goes onto pay only a certain percentage of the total value of the asset while the rest is availed as a loan from the broker. Here, the broker is the lender and the asset in the investor’s account is the collateral or security.
Business and Margin
With respect to business, the margin is defined as the difference between a product’s cost of production and its selling price. It is also defined as the ratio of profit to revenue. Sometimes, the margin is also referred to as the part of the interest rate on adjustable-rate mortgage (ARM), which is added to the rate of the adjustment index.
Breaking Down Margin
Margin refers to the equities that investors have in their account with the brokerage firm. ‘To buy on margin’ or simply ‘to margin’ implies that the loan availed from the broking institution is used to buy capital assets or securities.
In addition to holding a general investment account with the broker, investors should also hold a margin account in order to buy on margin. The margin accounts are those accounts to which the broker lends investors, and they can purchase securities with this. With margin, an investor can buy a lot more securities than he actually can with no margin.
