What does the concept of 'margin' involve in investing?

The concept of 'margin' in investing fundamentally involves borrowing funds from a broker to trade assets. When an investor uses margin, they are essentially taking out a loan from their brokerage to buy securities or other financial instruments. This allows the investor to leverage their position, meaning they can purchase more assets than they could with just their own capital.

Using margin can amplify both potential gains and potential losses. For example, if an investor buys stocks on margin and those stocks increase in value, the investor realizes a larger profit due to the increased amount of stock purchased. However, conversely, if the value of the stocks decreases, the losses can also be magnified, which may lead to a margin call where the investor is required to deposit more cash or liquidate assets to maintain the required equity percentage in the account.

The other options, while related to investing, do not accurately describe the concept of margin. Investing in low-cost funds, investing without using leverage, and employing strategies for minimizing risks do not encompass the borrowing aspect that defines margin trading.