Margin (Broker)

Margin is borrowed money your broker lends you to buy stocks, letting you invest more than you have in cash. You'll encounter this when opening a brokerage account—some accounts offer margin, others don't. It matters because it amplifies both gains and losses: you can make bigger profits, but you can also lose more than your initial investment. Your broker charges interest on the borrowed amount. For example, if you have $5,000 and your broker offers 2:1 margin, you could buy $10,000 worth of stock. If that stock rises 20%, you make $2,000 profit on your $5,000—a 40% return. But if it drops 20%, you lose $2,000 and still owe interest. Margin requires discipline and carries real risk.