Which of the following describes the concept of buying on margin?

• A. Investing solely using personal savings
• B. Buying more stock than one can afford by borrowing funds
• C. Acquiring stocks in bulk for discounts
• D. Purchasing stocks for long-term holding without leverage

Answer: (B)

Buying on margin refers to the practice of purchasing more stock than an investor can afford by borrowing funds from a brokerage. This concept involves using leverage, where the investor pays a portion of the stock's purchase price with their own money and borrows the remaining amount from a brokerage. By doing so, investors can increase their potential returns, but it also magnifies their risks, as they are responsible for repaying the borrowed amount regardless of the stock's performance.

Options related to using personal savings, acquiring discounts, or long-term holding without leverage do not encapsulate the essence of buying on margin, which explicitly involves leveraging borrowed funds to invest beyond personal financial capacity.