Margin loans are loans taken to finance the purchase of securities, usually the purchase of stock (also known as equity). Margin loans normally are extended by the same financial services firm (stock brokerage firm or securities firm) that the customer uses to trade in the security in question.
The maximum value of a margin loan relative to the value of the underlying securities is set by the Federal Reserve Board. Each firm is free to implement more stringent lending policies than prescribed by the Fed.
The portion of the trade price not financed by the margin loan can be paid for in cash or by posting yet other securities as collateral. If securities are posted as collateral, their value must normally be at least twice the amount of cash otherwise required. A "margin call" results when there is a fall in the price of securities, either the securities purchased with the margin loan, or the securities posted as collateral for it. A margin call requires the borrower to post yet more collateral in the form of cash or securities.
The rules surrounding margin can get rather complex. For examples, see About.com's discussion of Margin 101.
