What does margin account mean?

A brokerage account in which an investor uses securities and cash holding as collateral for a loan from their broker. The borrowed money is then used to increase the size of your investment beyond your liquid spending power in order to magnify the potential profits.

The funds lent to an investor in a margin account accrue interest at a 3% - 8% rate until it is repaid. And, if the combined value of your securities and cash position falls too low, your broker may require to repay some of your debt in whatâ??s known as a â??margin call.â??

We strongly advise consumers against investing on margin. The practice is simply too risky for amateur investors to attempt with any assurance of the safety of their principal. It is therefore more like gambling than investing. Whatâ??s more, interest will cut into your potential profits and make the burden to make money â?? already intensified by your borrowing â?? all the more difficult to meet.