Margin uses securities in your brokerage account as collateral for a loan from a brokerage firm. It can be a way to increase your buying power as an investor. You can use a margin loan to purchase additional investments, or you can use the cash from the loan for other purposes outside of your brokerage account. It is important to note that customers who trade securities on margin incur the potential for higher losses. The brokerage firm charges interest for the money it lends and a customer needs to understand the risks and additional charges incurred by using a margin loan.
Risks Associated with Margin Borrowing
Buying stock on margin is not for everyone. It is for investors who are able to sustain significant losses, if they occur. Before opening a margin account, you should understand that you could lose the money you borrow as well as your own money. When the securities in your account decline in value, so does the value of the collateral supporting your loan. If this occurs, the broker is permitted to sell your assets without contacting you, and you may suffer adverse tax consequences from the sale. In a rapidly declining market, your broker can sell your entire account at a loss substantial to you.
Before opening a margin account, you should fully understand how a margin account works and the risks involved.
Learn more about margin borrowing or setting up a margin account. Contact M&T Securities, Inc. Brokerage Services at 1-800-724-7788, option 2.