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Here's how I explained it in our newspaper feature (to mearn more about our feature and how to help get it in your local paper: http://www.fool.com/Specials/1999/sp990409Newsprint.htm)
Selena

Q. How does buying stocks on margin work?

A. Buying on margin means you're borrowing money from your brokerage firm and using it to buy stocks. It's attractive because you can turn a profit using money that you don't even have. For that privilege, you're paying interest to the brokerage, just like with other loans. (Actually, it's a lot easier to open a margin account than to apply for a bank loan.) If the market turns against you, you either sell for a loss -- plus interest costs -- or hold on until the market picks up, paying interest all the while. Fools borrowing on margin and paying 9% interest should be pretty sure their stocks will appreciate more than 9%. If your margined securities fall below a certain level, you'll receive a "margin call," requiring an infusion of additional cash.

Only experienced investors should use margin. And although you're currently allowed to borrow up to 50% of what your actual holdings are worth, many Fools think that 20% is the most you should borrow, if you borrow at all. You might remember some kind of market decline around 1929. Well, that was partly due to people buying too much on margin. The required collateral was a mere 10%, then, not 50%, so things are considerably more controlled now.
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