The downside to using margin is that if the stock price decreases, substantial losses can mount quickly. If you fully paid for the stock, you'll lose 50 percent of your money. But if you bought on margin, you'll lose 100 percent, and you still must come up with the interest you owe on the loan. In a cash account, your risk is limited to the amount of money that you invested. In a margin account, your risk includes the amount of money you have invested plus the amount that has been loaned to you plus interest.
Substantial losses can mount quickly in a volatile market.
Margin accounts can be very risky, and they are not suitable for all investors. Before opening a margin account, you should fully understand that they have risks not associated with cash accounts. Brokerage firms can establish their own requirements as long as they are at least as restrictive as the Federal Reserve Board and SRO rules. The Federal Reserve Board can change this percentage at any time. Also, a higher percentage may be required in your margin account without notice to you.