Section: 7 Trading on Exchanges

Sub Section: 7 Buying on Margin

Purchasing stocks on margin means the investor borrows part of the purchase price of the stock from a broker. The brokers in turn borrow money from banks at the call money rate to finance these purchases; then they charge their clients the interest payable to the bank, plus a service charge for the loan. All securities purchased on margin must be maintained with the brokerage firm, for the securities are collateral for the loan.