Margin account

A margin account is one that an investor holds with a broker, effectively allowing him to buy securities on credit. When the investor wishes to trade, he need only pay a certain percentage of the total value of the securities he is purchasing. The balance is borrowed from the broker, whose collateral is the value of the shares held in the account.

The minimum amount that must be held in the margin account is referred to as the margin requirement. This kind of arrangement works well for the investor when markets are rising as they are effectively leveraging their gains.

However, if the prices of the securities in the portfolio start to fall, the opposite is true. To cover the cost of borrowing from the broker, the investor may have to sell some of his securities. Worse still, he may get what is referred to as a margin call. If the price of an equity in the portfolio has fallen, then so has the broker’s collateral, and he may want to reduce the value of the loan he has made to keep the account within its margin requirements. During the collapse of the tech bubble, many investors were unable to meet their margin calls.

66% off newsstand price

12 issues (and much more) for just £12

That’s right. We’ll give you 12 issues of MoneyWeek magazine, complete access to our exclusive web articles, our latest wealth building reports and videos as well as our subscriber-only email… for just £12.

That’s just £1 per week for Britain’s best-selling financial magazine.

Click here to take advantage of our offer

Britain is leaving the European Union. Donald Trump is reducing America’s role in global markets. Both will have profound consequences for you as an investor.

MoneyWeek analyses the critical issues facing British investors on a weekly basis. And, unlike other publications, we provide you with the solutions to help you turn a situation to your financial advantage.

Take up our offer today, and we’ll send you three of our most important investment reports:

All three of these reports are yours when you take up our 12 issues for £12 offer today.

MoneyWeek has been advising private British investors on what to do with their money since 2000. Our calls over that period have enabled our readers to both make and save a great deal of money – hence our position as the UK’s most-trusted investment publication.

Click here to subscribe for just £12