MARGIN ACCOUNT

A brokerage account in which the broker or dealer lends the customer cash in order to purchase securities. Unlike a cash account, an individual can buy securities by using the money he/she borrowed from the brokerage. The loan is collateralized by the securities and cash. The account holder will be required to deposit additional cash or sell a part of the security in the event the stock value drops. The Federal Reserve limits margin borrowing to 50% at most of the invested amount. Some brokerage firms have stricter requirements, especially for volatile stocks.