This is a complicated question, and one that, if you’re asking, you need to tread lightly. Here’s our best attempt to simplify it. A margin account is an account offered by brokerage firms that allows investors to borrow money to buy securities.
How a Margin Account Works
Brokers charge an interest rate on the borrowed money. Also, a maintenance margin is required, meaning a minimum fixed dollar amount must be maintained in the account to be allowed to trade on margin. The minimum margin amount is calculated by subtracting the borrowed amount from the account's total equity which includes both cash and the value of any securities. If that makes sense, let’s break it down further.
How Much Can You Borrow?
An investor with a margin account can usually borrow up to 50% of the total purchase price of marginable investments. The percentage amount varies by stock.
A margin call occurs when the investments in the account and the cash decrease in value and fall below the minimum maintenance margin amount. The investor must deposit additional funds or sell a portion of the portfolio to meet the margin call. If the investor doesn't fund the account following a margin call, the broker will sell some of the stocks in the account to make up the shortfall. The broker does not need the account holder's approval to sell any shares if the investor does not meet the margin call.
It's important to remember that borrowing on margin could have consequences. Margin is using leverage, which means that both your gains and losses are magnified.
You can learn more here: https://www.investopedia.com/terms/m/margin.asp