What Costs and Risks Are Incurred in Using a Margin

question 52

Essay

What costs and risks are incurred in using a margin account that are not present in a cash account?

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Definitions:

Asset Portfolio

A collection of various types of investments held by an individual or institution.

Liabilities

Financial obligations or debts owed by a company or individual to creditors, typically categorized as current or long-term.

Rebalancing

The process of realigning the proportions of assets in a portfolio to maintain the original or desired level of asset allocation and risk.

Durations

A measure of the sensitivity of the price of a bond or other debt instrument to changes in interest rates, often used as an indicator of interest rate risk.