What is the typical outcome if someone takes a loan on margin?

Taking a loan on margin refers to borrowing funds from a brokerage to purchase more securities than one could with just their own capital. When an individual engages in margin trading, they incur interest costs on the borrowed amount. This interest is typically charged until the loan is repaid, which can significantly affect the overall profitability of the investment if the investor is experiencing losses or if the returns are marginal.

While some may think that they can only lose the amount of their initial investment (the first choice), margin trading can actually lead to larger losses, including the total investment and the borrowed funds. Additionally, margin trading does not involve longer settling times or automatic dividends, as those terms are not tied to the mechanics of margin loans themselves. Therefore, the aspect of incurring interest costs is the most accurate outcome related to borrowing on margin.