Margin (finance)
Margin is like borrowing money from a bank to buy things. Let's say you want to buy a toy which costs $10, but you only have $5. You go to the bank and ask if they can give you the other $5, with the promise of giving them back the money later, plus some extra money for the favor. This extra money is called interest.
Similarly, in finance, when you want to buy something like stocks (which is like buying a part of a company), you might not have enough money to buy all the stocks you want. So, you ask your broker (a fancy word for a person who helps you buy and sell stocks) if they can lend you some money to buy the stocks. This money is called margin.
But there's a catch. The broker will only give you a certain amount of money, depending on how much you already have in your account with them. This amount is called the margin requirement. The margin requirement is usually a percentage of the total amount you want to buy. For example, if you want to buy $100 worth of stocks, and the margin requirement is 50%, then you will need to have at least $50 in your account to be able to borrow the other $50.
And just like the bank charges you interest for borrowing money, the broker will charge you interest for borrowing their money to buy stocks. This interest is called the margin rate. The margin rate is usually higher than the regular interest rate, because buying stocks is considered a riskier investment than buying a toy.
So, in summary, margin is like borrowing money to buy things in finance, and it comes with a margin requirement (how much money you need to have in your account to be able to borrow) and a margin rate (the extra interest you pay for borrowing).
Similarly, in finance, when you want to buy something like stocks (which is like buying a part of a company), you might not have enough money to buy all the stocks you want. So, you ask your broker (a fancy word for a person who helps you buy and sell stocks) if they can lend you some money to buy the stocks. This money is called margin.
But there's a catch. The broker will only give you a certain amount of money, depending on how much you already have in your account with them. This amount is called the margin requirement. The margin requirement is usually a percentage of the total amount you want to buy. For example, if you want to buy $100 worth of stocks, and the margin requirement is 50%, then you will need to have at least $50 in your account to be able to borrow the other $50.
And just like the bank charges you interest for borrowing money, the broker will charge you interest for borrowing their money to buy stocks. This interest is called the margin rate. The margin rate is usually higher than the regular interest rate, because buying stocks is considered a riskier investment than buying a toy.
So, in summary, margin is like borrowing money to buy things in finance, and it comes with a margin requirement (how much money you need to have in your account to be able to borrow) and a margin rate (the extra interest you pay for borrowing).
Related topics others have asked about: