What is buying on margin?

Buying on margin refers to borrowing from a brokerage firm (through a margin account) to make an investment. How Does Buying on Margin Work? You want to buy 1,000 shares of Company XYZ for $5 per share but don't have the necessary $5,000 -- you only have $2,500.

What is margin trading & how does it work?

However, that’s not the only way. What is margin trading? Margin trading, or “buying on margin,” means borrowing money from your brokerage company, and using that money to buy stocks. Put simply, you’re taking out a loan, buying stocks with the lent money, and repaying that loan — typically with interest — at a later date.

Should you buy stocks on margin?

Put simply, you’re taking out a loan, buying stocks with the lent money, and repaying that loan — typically with interest — at a later date. Buying on margin has some serious appeal compared with using cash, but it’s important to understand that with the potential for higher returns, there’s also more risk.