Buying on margin is a powerful investing strategy that can amplify gains, but carries the risk of large losses due to the leverage it uses. It is the act of buying stocks, mutual funds, and other securities with money borrowed from a broker. When using this strategy, it's important to understand the risks involved.

When buying on margin, your broker lends you money to purchase investments and charges interest on the loan. You're required to maintain a certain level of equity, known as the minimum margin, in your account. If the value of your investments falls and brings your account balance below the required minimum, your brokerage may require you to bring your account back in balance, either through a deposit of cash or other assets, or by selling investments so your account balance can stay afloat in order to avoid a margin call. If you fail to add funds or securities to your account, your broker may liquidate a portion of your account to bring your margin back up to the minimum requirement.

On the flip side, when investments increase in value, the gains are magnified by the borrowed funds. For this reason, it's important to understand the concept of margin buying and to exercise proper risk management. You should be comfortable with taking on the added risk of buying on margin and be aware that losses can quickly rise when the market drops.

Generally, the minimum requirement for margin is 50%, meaning that you cannot borrow more than 50% of the purchase price of the investments you own. For example, if you want to buy a stock with a purchase price of $1000, you must have a minimum of $500 available in your margin account to do so. This requirement protects brokers from losses incurred in the event that the stock's price decreases and they are forced to sell it to cover the loan.

Although buying on margin carries risks, it also has its share of advantages. In addition to magnified profits, it provides access to investment opportunities that may not have been available to you before, if you only had your own money to invest with. When used responsibly, it can be a powerful tool to accelerate your wealth-building efforts.

With the potential to amplify both your gains and losses, it's important to understand the risks and rewards of buying on margin before engaging in this type of investment. It's best to talk with a qualified financial advisor to get a better grasp of the strategy and ensure it's right for you.