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Margin Account

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A margin account allows a trader or investor to buy stocks either with cash or with borrowed funds. Funds for a margin account are borrowed from the broker or brokerage firm handing the investor's transactions. When an investor purchases stock with funds from the margin account, the stocks purchased are the collateral for the loan. If the value of the stocks in a margin account drops sufficiently then the investor will have to sell shares or add more cash to the margin account in order to comply with the requirements of the margin account. While the percentage of stock that may be margined is federally established. additional requirements are set by the NYSE, NASD, and the broker's margin account agreement.



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