margin is a loan given by brokers to investors and traders who use the borrowed money to purchase stock shares and other types of securities and use cash and other assets held in the brokerage account as collateral. investors and traders use margin to increase their purchasing power, thereby maximizing potential gains and winning positions. typically, an initial margin of 50% is required to enter a position for a marginable security. for example, ? buys $200 worth of stock, funding half the transaction with money loaned from his broker and the other half from cash in his account. after a positive earnings announcement, the stock price jumps 25%, increasing the value of ?'s initial investment to $250. he decides to sell his position and return the $100 he borrowed for margin back to his broker. ? is left with the profit of $50 as opposed to the $25 he would earn had he bought the stock in cash, giving him a roi of 50%. however, while ? profited in this example, had the stock decrease by 50%, thereby halving his investment value to $100, he would have to repay the borrowed $100 back to his broker, leaving him with an $100 loss. thus, it is important to fully understand the associated risks prior to trading with margin as the possibility of substantial gains is matched by significant losses.