Margin loan - Financial definition
Concise definition of the term margin loan
A margin loan is a loan from a brokerage to an investor, allowing the investor to purchase securities using the securities as collateral.
Comprehensive definition of the term margin loan
In the context of financial markets, a margin loan enables investors to leverage their investment by borrowing funds from a brokerage firm, with the purchased securities acting as collateral. This practice amplifies potential gains but also increases risk, as a decline in the value of the securities can trigger a margin call, requiring the investor to deposit more funds or sell assets to cover the loan.
Margin loans are commonly used by traders to enhance returns, though they involve strict regulatory requirements and maintenance margin levels set by both brokers and governing bodies.