Series 24: 3.2.2.2. Margin Accounts

3.2.2.2. Margin Accounts

A margin account allows a customer to purchase securities partially on credit, with the customer putting up some of the money and the broker-dealer loaning him the rest. A customer who uses the credit extended by a margin account is said to be buying on margin. The amount that the customer deposits into the account is called the customer’s margin. Often this is a cash deposit. The customer may also transfer securities he owns into the margin account, with their market value counting toward the customer’s margin. But the customer runs the risk that changes in the securities’ market value will unexpectedly change how much margin he has.

The total value of all securities in the account—whether deposited by the customer or bought on margin—is called the account’s long market value (LMV). The amount of money the customer owes the broker-dealer as a result of buying on margin is called the account’s debit balance (DB). The LMV minus the DB is called the account’s equity.

LMV – DB = equity

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