What process involves a broker loaning part of the required funds to an investor?

The process that involves a broker loaning part of the required funds to an investor is referred to as margin trading. When an investor wants to buy securities but does not have enough capital to meet the full purchase price, they can open a margin account with a brokerage. This account allows them to borrow money from the broker to purchase additional shares beyond what they could afford with their own cash alone.

In this arrangement, the investor only has to put up a percentage of the total investment, known as the margin requirement. The borrowed funds are a loan from the broker, and the securities purchased serve as collateral for that loan. This method enables investors to increase their buying power and potentially amplify their returns, although it also increases the risk, as losses can be magnified in a similar manner.

In contrast, leverage refers more broadly to the concept of using borrowed capital in various forms, not just through a broker's loan to facilitate stock purchases; while collateralization refers to the process of pledging an asset to secure a loan. Equity financing typically involves raising capital through the sale of shares, which does not involve borrowing from a broker.