*Basic

Margin debt is the amount that traders borrow from stock brokers when they want to trade on margin, or buy securities such as stocks or exchange-traded funds using leverage.[1]

**Intermediate

In general, many investors look for a company to have a margin debt ratio of between 0.3 and 0.6.[2] From a pure risk perspective, debt ratios of 0.4 or lower are considered better,[3] while a debt ratio of 0.6 or higher makes it more difficult to borrow money.[4] Margin interest rates are typically lower than those on credit cards and unsecured personal loans.[5] There's no set repayment schedule with a margin loan,[6] monthly interest charges accrue to your account,[7] and you can repay the principal at your convenience.[8] When purchasing securities through a broker, investors have the option of using a cash account and covering the entire cost of the investment themselves,[9] or using a margin account- meaning they borrow part of the initial capital from their broker.[10] The portion the investors borrow is known as margin debt, while the portion they fund themselves is the margin, or equity.[11]

***Advanced

Falling below the maintenance margin requirement triggers a margin call unless the trader deposits the relevant amount of cash in their account.[12]

Sources

[1] Editors. Cash Account Balances and Descriptions. Fidelity.com
[2] Editors. Margin: How does it work? Schwab.com
[3] Editors. Margin Debt – overview, importance, pros and cons, and trading potential. Corporatefinanceinstitute.com
[4] Kenton, W (2021). Margin Debt. Investopedia.com
[5] Editors. Margin Trading: Understanding how to invest on margin. Merrilledge.com
[6] Editors. What is margin balance and how does it work? Sofi.com
[7] Editors. Margin Statistics. Finra.org
[8] Editors. Stock Market Indicators: Margin Debt. Yardeni.com
[9] Editors (2022). Margin Debt Valuation Model. Currentmarketvaluation.com
[10] Editors. Margin Debt: What is it and how to measure it. Seekingalpha.com
[11] Editors. Definition, Understanding, and why margin debt is important? Cleartax.in
[12] Folger, J (2022). What happens if I can't pay a margin call? Investopedia.com