A broker's reuse of client securities pledged as collateral — lending them out or pledging them onward — permitted within limits for margin accounts.
When you open a margin-account, the agreement typically lets the broker lend out securities you have borrowed against. That is how short-selling supply exists at all, and it is a meaningful revenue line for brokers.
Limits matter. In the US, fully paid and excess margin securities must be segregated under the customer-protection-rule, so reuse applies to the margin-debit portion rather than to everything you own. Shares lent out also lose their voting rights, and dividends arrive as taxable substitute payments.
Example: you hold $200,000 of stock with a $60,000 margin loan. The broker may generally reuse collateral tied to that debit, commonly measured as up to 140% of it — about $84,000 of securities — while the remaining $116,000 must be segregated for you.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
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