What does buying on margin mean?

Buying on margin refers to the initial payment made to the broker for the asset—for example, 10% down and 90% financed. The investor uses the marginable securities in their broker account as collateral . The buying power an investor has in their brokerage account reflects the total dollar amount of purchases they can make with any margin capacity.

What happens if you don't use margin?

Since this equals the amount owed to the broker, the investor loses 100% of their investment. If the investor had not used margin for their initial investment, the investor would still have lost money, but they would only have lost 50% of their investment—$2,500 instead of $5,000.

What is a'maintenance' margin?

The initial (maintenance) margin requirement is 75% of the cost (market value) of a listed, long-term equity or equity index put or call option. For most individual investors primarily focused on stocks and bonds, buying on margin introduces an unnecessary level of risk.

What is a profit margin?

Profit margins are one of the simplest and most widely used financial ratios in corporate finance. A company’s profit is calculated at three levels on its income statement. This most basic is gross profit, while the most comprehensive is net profit. Between these two lies operating profit.