In order to be able to buy stocks on margin, one must first open a margin account for which an initial investment (also known as minimum margin) of about $2,000 is required. The amount could vary depending on the rules of different brokerage houses. After opening the account, one can borrow up to maximum 50 percent of the price of the stock. According to the regulations of the New York Stock Exchange, investors buying stocks on margin must maintain a minimum 25 percent of the total market value of the securities existing in the margin account.

If the stock prices rise or remain stable, and if the repayments are made on time then you are safe. However, if the stock prices drop, and if your margin account value goes lower than the minimum threshold then you are in for a rude shock. An investor might even end up losing more money than he has actually invested. When falling stock prices reduce the value of your securities then you will need to compensate for the losses by either selling some of your securities or by depositing money in your account. Alternatively, the brokerage firm may trade a few or all of your securities either with or without consulting you to cover the losses and repay the loan amount.