Margin financing allows investors to borrow money from their brokerage firm to leverage for a larger investment position in the market. The investor can potentially gain from both: 1. Higher capital-appreciation gains due to his larger investment exposure; and 2. Higher returns due to positive carry (which is a strategy that involves borrowing money to invest it to make a profit on the difference between the interest paid and the interest earned).

Instrument category

Debt financing

Implementation status

Moderate - tried and tested

Enabling conditions and success factors
  • Prudent and active risk management is crucial.
Instrument benefits
  • Allows to purchase more shares and potentially earn higher returns without disbursing more cash upfront.
Challenges and risks to implementation
  • It increases the risks and potential returns to investors. If prices move against the investor, losses will be magnified by the greater investment exposure.

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