Margin (equity trading)

What it means

Borrowing from a broker to buy securities, using the securities as collateral.

The exam angle

A margin call comes when equity falls below the maintenance margin. Leverage magnifies both the return and the speed of the call.

Where it appears in the syllabus

• EquitiesCFA Level I · exam weight 11–14% · Market organisation, indexes, industry analysis, dividend models.
• Financial Markets & ProductsFRM Part I · exam weight 30% · Institutions, market structure, futures, swaps, options, rates, FX, MBS.

Related terms

• Short sellingSelling borrowed securities in the expectation of buying them back cheaper.
• BetaThe sensitivity of an asset’s return to the market’s return — its share of systematic risk.
• Book valueThe accounting value of equity: assets less liabilities as reported.
• Capital asset pricing modelA model stating that an asset’s expected return equals the risk-free rate plus beta times the equity risk premium.
• Common shareAn ownership claim on a company’s residual cash flows and assets, normally carrying a vote and ranking last in…
• Cost of equityThe return equity holders require for bearing the residual risk of the business.