1) Buying a stock on margin is a form of leverage allowing investors to earn higher returns with less capital committed. Essentially, the portfolio is used as collateral to borrow funds used for investing in excess of the portfolio's total cash value. For example, an investor may gain 150% exposure to the stock market by using margin. If the market moves in the investor's favor, the profits are higher than if they were otherwise fully invested.

2) Of course with increased exposure comes increased risk. Leverage cuts both ways, and losses may occur at the same velocity as gains. Investors should carefully consider if their portfolio and investing strategy can withstand adverse price events when using margin.

3) If investor applies too much leverage, and their investments decline in value, they may face a margin call or be liquidated. A margin call is when the broker asks for additional capital to support the margined positions. The alternative is liquidation, whereby the broker sells off positions at a loss until the margin balance is restored. This situation can be ruinous for an investor, and highlights the risks involved with using leverage in a volatile market.

4) Brokers tend to set margin rates by adding a spread from a base or benchmark rate. Generally the interest rate spread is lower for higher amounts borrowed. This reflects a volume discount approach rather than an absolute risk-based approach. The actual base or benchmark rate varies depending on the particular broker and their business model. For example, brokerages with $0 commissions might charge higher margin rates to make up for those trading fees. More active traders are more likely to use margin, so attracting these traders with $0 commissions makes sense.

5) Generally, I do not recommend any of my clients to use margin. Personally I might consider using it after a significant market crash, but only if I can identify a high quality portfolio that can weather significant volatility.