Buying on the Margin

Definition

Buying on the margin is a practice where investors buy stocks with borrowed money, hoping that the stock price will go up and they can pay back the loan with their profits.

Analogy

It's like buying a concert ticket using your credit card, hoping that you can sell it at a higher price later. If you manage to sell it for more than what you paid, you can pay off your credit card debt and keep the profit. But if no one wants to buy your ticket or its value decreases, you're stuck with debt.

Related terms

Margin Call: A broker's demand of an investor who is using margin to deposit additional money so that the margin account is brought up to the minimum maintenance margin.

Stock Broker: An individual or company that charges a fee or commission for executing buy and sell orders submitted by an investor.

Securities Exchange Act of 1934: A law governing secondary trading and brokers/dealers, extending regulation coverage to both exchanges and over-the-counter markets.