Margin trading is the practice of buying securities using money borrowed from a broker. The loan is secured by a margin made up of the investor’s deposits held at the broker. Margin trading allows investors to make large investments without tying up large amounts of capital.
If the value of investments falls to the point that an investor’s deposits no longer provide full collateral against the loan, the broker will exercise a margin call. This is a demand to the investor to replenish their margin by depositing more money into their brokerage account.
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