What term describes the practice of purchasing stocks by paying only a fraction of the cost?

The practice of purchasing stocks by paying only a fraction of the cost is known as buying on margin. This allows investors to borrow money from a broker to buy more shares than they could with just their own funds, amplifying both potential returns and potential losses. When investors buy on margin, they are essentially using leverage, as they are investing borrowed funds in addition to their own capital.

This approach can be attractive during bull markets when stock prices are rising, as it can lead to higher gains. However, it also entails greater risk; if the value of the stocks declines, investors not only lose their own investment but may also be required to pay back the loan without the asset to cover it. This practice is fundamentally different from short selling, which involves betting that a stock's price will decline, market speculation, which broadly refers to the act of buying financial instruments with the expectation of making a profit from future price changes, and dividend investing, which focuses on purchasing stocks for income generated through dividends rather than capital gains.