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What is a margin when referring to the stock market?

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03/13/2013

Answer

(1) in futures trading, a specific dollar amount, set by each exchange, that both buyers and sellers must deposit as a guarantee that both will perform as agreed to make or take delivery during a designated period of time. The deposit is held by the clearing organization of the exchange. (2) in stock transactions, margin refers to the down payment required when borrowing from a broker to finance the purchase of stock.

Answer

Margin is borrowing money to buy securities. The upside of margin is it amplifies gains. The downside is it amplifies losses. There are only two ways to lose more money than you invest in the stock market: selling naked calls, and margin trading.