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Margin is the sum of money or asset that a borrower must pledge as security to get a loan or to engage in a margin trade. In other words, it is the difference between the asset's worth and the amount borrowed to buy it. The term "margin" may also refer to the profit margin, which is the portion of revenue that a business makes from its sales.
Trading in securities, commodities, and other financial assets sometimes involves the usage of margins. While trading on margin, a trader obtains credit from a broker in order to purchase securities or commodities. Usually represented as a percentage of the entire transaction value, the margin is the amount of equity that the investor must contribute in order to secure the loan.
As an illustration, if an investor wishes to purchase $10,000 worth of stock on margin and the required margin is 50%, the investor must contribute $5,000 in equity and can borrow the remaining $5,000 from the broker. The margin requirement may differ based on the broker and the asset being traded, and it may alter over time depending on the state of the market and other variables.
Margin is sometimes used to determine a trade's profit or loss. If the asset's value rises, the investor may be able to sell it for a profit; the margin is the sum of the sale price and the asset's purchase price. To preserve the required equity in the trade, the investor could need to contribute more margin if the asset's price falls.
When referring to financial statements, the term "margin" can mean either the profit margin or the percentage of revenue that a business generates from its sales. This is determined by dividing the business's net income by its revenue, and it is frequently stated as a percentage. A company with a high-profit margin is producing a sizable amount of profit in comparison to its sales, while one with a low-profit margin may be operating with thin margins or experiencing intense competition.
