When assessing a margin account, what defines "securing" the loan?

• A. The securities are equal to the loan balance
• B. The outstanding securities are liquidated
• C. The securities have increased significantly in value
• D. The securities cover the outstanding loan balance

Answer: (D)

When assessing a margin account, "securing" the loan refers to the values of the securities held in the account being sufficient to cover the outstanding loan balance. This means that the market value of the securities is at least equal to the amount borrowed. It is a crucial concept in margin trading because it ensures that the broker has collateral to protect against the risk of default by the borrower.

If the securities cover the loan balance, it indicates that there is adequate collateral in place should the borrower fail to meet their obligations. This is important because if the value of the securities were to drop significantly, the broker could face losses. By having securities that fully cover the loan, the lender can mitigate this risk and feel secure in extending credit.

In contrast to the other choices, the assertion that the securities are equal to the loan balance highlights not just a position of balance but a safeguard for the lender against potential market fluctuations, reinforcing the stability of the margin account.