MARGINING Meaning and
Definition
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Margining is a term commonly used in the financial and investment industry to refer to the process of borrowing funds to purchase securities or instruments. It involves using the securities held in an investor's account as collateral or security to obtain a loan from a brokerage firm or financial institution. This practice allows investors to leverage their position and increase their purchasing power.
The margining process typically involves two components - the initial margin and the maintenance margin. The initial margin is the initial amount of cash or securities that an investor needs to deposit in their account to initiate a purchase. The maintenance margin is the minimum level of equity that must be maintained in the investor's account to continue holding the position.
Margining provides investors the opportunity to amplify potential profits by enabling them to invest more money than they currently have in their account. It also offers flexibility in managing investment positions by allowing investors to hold multiple positions without requiring the full cash payment for each transaction.
However, margining also comes with risks. If the value of the securities held as collateral decreases, the investor may be required to provide additional funds (known as a margin call) to meet the maintenance margin requirement. Failure to meet the margin call may result in forced liquidation of assets or securities to cover the outstanding loan.
Overall, margining allows investors to increase their investment capacity but must be approached cautiously due to the potential for amplified losses and the requirement for maintaining sufficient funds or securities in the account.
Common Misspellings for MARGINING
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