A margin account is a type of brokerage account that allows investors to borrow funds from the broker to purchase securities such as stocks, bonds, or other financial instruments. Unlike a cash account where investors can only trade with the money they have deposited, a margin account provides the opportunity to leverage their investments and potentially increase their buying power.

When an investor opens a margin account, they must deposit a certain amount of their own funds, known as the initial margin or minimum margin requirement, as collateral. The broker then lends the investor the remaining portion, referred to as margin or leverage. The margin acts as a loan to the investor, and they are required to pay interest on the borrowed amount.

Margin accounts offer the advantage of amplifying potential gains on investments. However, it also exposes the investor to higher risks as losses can be magnified, and if the value of the securities drops significantly, the investor may face a margin call. A margin call occurs when the account's equity falls below the maintenance margin level, requiring the investor to either deposit more funds or liquidate some of their positions to meet the minimum requirements.

While margin accounts can be powerful tools for experienced and risk-tolerant investors, they also carry substantial risks, and it is essential for users to fully understand the terms and potential consequences before engaging in margin trading.