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.

Paul Hodges: house prices could fall 50% in 'Great Unwinding'

Merryn Somerset Webb interviews Paul Hodges about deflation, the global economy's 'Great Unwinding', and how Britain's house prices could halve.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


29 January 1886: Karl Benz patents the motor car

On this day in 1886 Karl Benz patented his Benz Patent-Motorwagen, with a new and revolutionary power source – the internal combustion engine.