Securities and Exchange Commission (SEC)This answer is wrong.
The correct answer is below.
The Federal Reserve Bank of New York sets the margin rates or in other words the percentage of money that can be borrowed from a securities dealer when buying stocks on margin. As example, the NY Federal Reserve Bank may allow customers of a securities firms to put up only 50% of the cost of a stock purchase.
The definition of a margin loan in it's simplest term would be a loan which is taken out to finance the purchasing of equity , usually in the form of some sort of stock. The loan is normally requested and agreed by the same stock broker that the customer is using to trade with the equity they wish to purchase from.
No. An option is the legal right to buy stock at some time in the future at a pre-arranged price. You can buy a stock option, but it doesn't entitle you to the actual stock until you exercise the option. Buying on margin means that you're currently purchasing the actual shares, but you're borrowing part of the money you're using to do so from your broker.
Why was stock bought on margin considered a risky investment
stock rates of june30 2009
Buying on margin is borrowing money from a broker to purchase stock.
stock prices rose
stock prices rose
Buying on margin allowed more people to invest in the stock market by enabling them to borrow money to purchase stocks. With a margin account, investors could put down only a fraction of the total cost of the shares they wanted to buy, typically around 10%, and borrow the rest from a broker. This allowed individuals with limited capital to have greater purchasing power and participate in the stock market.
buying stock on margin is buying stock with money you dont have. in essence buying with credit. this is now illegal i believe as it was one of the culprits behind the great depression
If they had bought a very large amount of stock on margin (and many did) and the "margin call" came in shortly after that with the market collapse (and it happened to countless people) they were, in effect, instantly bankrupt.
its borrowing money to invest in the Stock Market
Buying on margin