The funds that brokerages arrange to finance investors’ share purchases. This provides an opportunity for investors to invest more than they could by using their own money and increase the potential returns.
Benefits for Investors:
- Investors don’t have to sell their long term investments to encash their value. They can take larger positions in the market by using shares they currently held in the portfolio
- Investors can increase their overall stock market investment with a moderately small amount of their own money
- The ability to invest more while having limited cash on hand enables investors to take advantage of timely market opportunities
- As margin funding enables to have more money, investor can spread the portfolio across a variety of shares and securities. As a result of this diversification, investment risk of investor’s portfolio gets reduced