What does the term "margin" refer to in investing?

The term "margin" in investing specifically refers to the practice of borrowing funds from a broker to purchase securities. This process allows investors to buy more securities than they would be able to with just their own capital, effectively leveraging their investments. When an investor buys on margin, they provide a portion of the purchase price (the margin) and the broker lends them the remaining funds. This not only increases the potential for higher returns but also amplifies the risk, as losses can also be magnified if the value of the purchased securities declines.

The concept of margin is crucial in understanding how leverage works in investing. It enables traders to take larger positions in the market, but it is essential for investors to manage the risks associated with margin trading, as it can lead to significant losses that exceed the initial investment.