What is margin?
- by Anna K.
Margin is a key point in buy-(re)selling process. Margin is a difference between the selling price of a product or service and the cost if its production or the company’s revenues and expenses. Margin also counts with the help of the amount of equities put in by the investors.
Margin can also be referred to as the edge of something or the amount by which an item falls short or surpasses other items. "To margin" means to use borrowed money to purchase securities.
Margin can also be used as a verb. To margin means buying on margin. It means to practice buying an asset where a buyer pays only a percentage of the asset's value and loans the rest of the needed amount from the bank or broker.
The broker acts as a lender, and he uses his funds in the securities account as collateral on the loan's balance. The margin is the amount of money an investor decides to put down on the account and is typically displayed as a percentage.
For example, if in investor wants to buy a $100,000 futures contract on margin, and the margin is 20%, he has to pay $20,000 in cash but can borrow the rest in the bank. The situation is going to bring a lot of advantage to the traders who count on winning big amounts at a high rate of return. This way paying off the loan will not be a problem for the trader.