Margin is borrowing funds or securities from a broker/dealer (such as Apex Clearing Corporation, the custodian of your account). When you purchase securities, you can either pay for them in full using cash or borrow part of the funds necessary from your broker/dealer. If you choose to purchase using borrowed funds, it is referred to as buying on margin. Securities purchased using margin are held in a margin account, and represents collateral for the funds extended to you.
Margin accounts are governed by a Margin Agreement between you and your broker/dealer. It includes the interest rate at which you may borrow funds and a maintenance requirement for the equity in your account. The value of the securities in a margin account fluctuates (and could potentially decline in value). Therefore, the collateral for the funds you borrowed from your custodian may also decline in value. Your broker/dealer may take action in this case, such as issuing a margin call or selling the securities in your account in order to bring your account back up to the maintenance requirement.
Risks Associated with Margin
Margin investing involves greater risks and is not appropriate for every investor. Before using margin, you should carefully review the Margin Disclosure statement that was provided to you when you opened your account (a copy is available in Kapitall's Terms and Conditions). You should also evaluate your investment objectives, financial resources and risk tolerance to determine if margin is appropriate.