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Besides using a margin loan to buy more stock than investors have cash for in a brokerage account, there are other advantages. For instance, margin accounts offer faster and easier liquidity.
If the initial margin requirement were 60%, then stock equity = $50 × 1,000 = $50,000 and leveraged dollars (or amount borrowed) = $50,000 × (100% − 60%) = $20,000. If the maintenance margin changed to 25%, then the customer would have to maintain a net value equal to 25% of the total stock equity.
Conceptually, buying stocks on margin isn't much different from using leverage to buy a home, but in practical terms, the practice raises much more dire concerns, with reminders of past financial ...
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Selling stock is procedurally similar to buying stock. Generally, the investor wants to buy low and sell high, if not in that order (short selling); although a number of reasons may induce an investor to sell at a loss, e.g., to avoid further loss. As with buying a stock, there is a transaction fee for the broker's efforts in arranging the ...
The cost of borrowing the stock is usually negligible compared to fees paid and interest accrued on the margin account – in 2002, 91% of stocks could be shorted for less than a 1% fee per annum, generally lower than interest rates earned on the margin account. However, certain stocks become "hard to borrow" as stockholders willing to lend ...