Series 6: 8.1.2. Margin Accounts

8.1.2. Margin Accounts

Investors are allowed to purchase securities on loan or make short sales of securities if they open what is called a margin account. Buying securities on margin means to purchase them with credit. Margin is a big business for broker-dealers because in addition to offering customers a way to buy more securities, broker dealers earn interest on margin loans to customers. In a margin account, the investor pays for part of the price of the security and the broker-dealer loans the investor funds for the rest. The loans must be secured by the customer with money or securities and placed in a margin account held by the lender. The broker-dealer is