Buying Stocks on Margin Explained | What is Margin trading | Essentials of Investment Course

In this video, I explain buying stocks on margin. Buying on margin is the act of borrowing money to buy securities. Buying stocks on margin can seem like a great way to make money but a risky endeavor.

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When purchasing securities, investors have easy access to a source of debt financing called broker’s call loans. Taking advantage of these loans is called buying on margin.

Purchasing stocks on margin means the investor borrows part of the purchase price of the stock. The margin in the account is the portion of the purchase price contributed by the investor; the remainder is borrowed from the broker. The brokers in turn borrow money from banks at the call money rate to finance these purchases; they then charge their clients that rate (defined in Chapter 2) plus a service charge. All securities purchased on margin must be maintained with the brokerage firm in street name, for the securities are collateral for the loan.