A margin account is an account that is used by the customer in order to buy securities for the investment purpose. The basic nature of the margin account is that of a brokerage account. In this type of scenario the broker allows the customer to open a brokerage account and lends cash to the customer so that the customer can purchase securities with the help of this cash. Customer uses the cash and its securities as collateral for acquiring loan from the broker. This means the loan is collateralized by the cash and securities of the customers. If the value of the stock that is being used as collateral drops the customer has to add more cash in the account or he has to sell some portion of the stock in order to keep the things going.
Marginal account is a kind of risky as well as advantageous for the investor. Actually by using margin account the customer is using the money of the broker for the investment purpose. Such investment may result in magnum gains or it may bring huge loss for the customer. The reason behind the huge gain and huge loss is that the affect of leverage that is associated with the cash acquired by the customer from the broker.
Another requirement associated with the margin account is that the customer has to maintain a minimum amount of equity in the account that is called maintenance margin. Now this equity must be equal to the 25 percent of the total value of the shares that stand in the market at that day.
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