A traditional lender such as a bank will not give you a loan so you can use the money to invest in the stock market.

How to Borrow Money to Invest in Shares | Finance - Zacks

If the stock shares you buy with borrowed money go down, you might not be able to pay back the loan. The stock brokerage industry, working under the rules of the Securities and Exchange Commission, allows investors to borrow money to buy shares, with the stock acting as collateral for the loan.

A margin loan is the type of loan a broker will provide to buy stock shares. To qualify for the loan, all you need to do is open a margin account with any stock brokerage firm. When you buy stocks in a margin account, if the cost of the shares is greater than the cash you have in the account, the broker provides a margin loan to pay the extra cost. With margin loans, you pay a portion of the cost of the shares and the margin loan covers the remaining part. Margin rules allow you to borrow up to 50 percent of the cost of the shares.

If you have an outstanding margin loan, you must maintain at least 25 percent of your own equity in the account. You equity will fall if the stocks you own go down in value. Drop below the 25 percent minimum and your broker will require you to add more cash to the account or sell some shares and use the money to pay down the margin loan.

As long as your account equity stays above 25 percent, there is no requirement to make payments or pay off a brokerage margin loan. If your stocks go up or you add cash to the account, you can buy more shares and increase the size of the loan.

Your broker will charge interest on the loan, which will be added to the outstanding loan balance. You can choose to pay down the loan at any time, using the cash in your brokerage account.

A cash balance can come from stock dividends, selling shares or making a deposit. Tim Plaehn has been writing financial, investment and trading articles and blogs since His work has appeared online at Seeking Alpha, Marketwatch. Plaehn has a bachelor's degree in mathematics from the U. Each week, Zack's e-newsletter will address topics such as retirement, savings, loans, mortgages, tax and investment strategies, and more. At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors.

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3 Easy Ways to Invest in the Stock Market (with Pictures)

More Articles How Much Does It Cost to Buy Stocks? How to Borrow From Class b Shares How to Borrow Against Your Investments How to Buy Partial Stock How to Use Other People's Money to Invest How to Buy Stock Shorts.

Margin Brokerage Account A margin loan is the type of loan a broker will provide to buy stock shares. Borrowing Limits and Equity Margin rules allow you to borrow up to 50 percent of the cost of the shares. Margin Maintenance If you have an outstanding margin loan, you must maintain at least 25 percent of your own equity in the account.

Paying Back Margin Loans As long as your account equity stays above 25 percent, there is no requirement to make payments or pay off a brokerage margin loan. Borrowing Money To Pay for Stocks FINRA: Investing with Borrowed Funds: No "Margin" for Error.

Borrowing to invest can make sense—if you follow the rules

About the Author Tim Plaehn has been writing financial, investment and trading articles and blogs since Recommended Articles How to Convert ADR to Ordinary Shares Do You Need Money to Buy the Shares When Executing a Call Option?

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