Borrowing Power Of Securities

Individuals, as well as large companies, use the value of securities they own in order to buy more securities on margin.

And, uh...what exactly is a margin?

Buying on margin is when you borrow money from a brokerage firm in order to purchase securities. You might not have all the cash you need at the moment to take advantage of a great stock tip you heard about, so you take out a loan using other stock you already own as collateral.

Hopefully your stock tip works out well, so you can pay back the loan. Otherwise, you'll have to sell some of the stock you own to pay it back. Usually you can’t borrow more than 50% of the value of the stock you have on hand. But, as you can imagine, that value is a moving target, since it will change just about every day.

So...once you're approved to have a margin account, the value will be updated daily and will be included in your monthly statement. The time period to pay back a margin loan is much shorter than taking out a loan to buy a house, so be sure to know what you're doing when using the buying power of securities. As if any of us ever really know what we're doing.