Glossary

Margin refers to the practice of borrowing money from a broker to invest in securities, amplifying the investor's buying power and potential returns. 📊 The borrowed funds are secured by the investor's existing assets, such as stocks or cash, which serve as collateral. Margin trading allows investors to potentially magnify their profits but also comes with increased risk, as losses can be equally amplified.

For example, if an investor has $10,000 and borrows an additional $10,000 on margin, they can invest $20,000 in total. If the investment grows by 20%, the investor's return would be $4,000, doubling their initial $2,000 gain if they had only used their own funds.

Fun fact: The term "margin call" ☎️ originates from the days when a broker would actually call an investor to inform them that their account's equity had fallen below the required maintenance margin, and they needed to deposit more money or sell some securities to meet the requirement.