From time to time, I am asked how margin in the stock market works.  Here is a simple explanation of how the basic leverage works.  Margin is leverage and leverage magnifies both profits and losses.  But, that is only part of the story . . .

Stock Goes Up $5.00 Per Share

Assume you purchase 1,000 shares of DEF priced at $10.00 per share.  Your total purchase is $10,000 plus commission and fees.  (For this example, we will assume there were no commissions or fees.)

You now owe the brokerage firm $10,000 on settlement date.  Read more »