Why Have a Margin Account?
We’ve seen how buying stocks on margin can provide financial leverage, which can be good and bad. But even if you do not plan to borrow money to buy stocks, there are many good reasons for having a margin account. First, it provides you with a way for a quick loan if you should need it. And because this loan is mostly secured, it will carry a lower interest rate than what you can likely get from a credit card. There’s also no application or waiting time. You just request a check and you’re on your way. Second, buying on margin is a way to take advantage of today’s prices without having the money today. Perhaps you have a company bonus coming but wish to buy the stock today. Even though you’re technically borrowing money, it is only to fix a short-term cash flow problem. This is different from someone who buys stock on margin because they don’t have the money. Here’s another way a margin account can help with cash flows. Assume your margin equity is 100% but that you sell some stock bec
