For my answer: B
USD 40,000 is the theoretical maximum buying power, not the amount you should automatically use.
Think of a margin limit like a maximum speed on a car:
Maximum = what you can do
Not a recommendation = what you should do
If you use too much margin, a stock falling can cause your losses to grow much faster.
Example:
Your money = $10,000
1× investment = $10,000 → 10% fall = -$1,000
2× exposure = $20,000 → 10% fall = -$2,000 + interest
Using the full margin limit also leaves you with less safety buffer. A big price drop can increase the risk of forced liquidation.
Bottom line:
Margin limit = maximum borrowing power, NOT free money.
For beginners, keeping some margin unused provides a safety cushion.
Financing Account Mini-Class
How exactly do I use a financing account? Does having a credit limit mean I've already borrowed money? How is financing interest calculated? When might a Margin Call be triggered? What should you pay attention to when using financing during earnings season?
To address these most frequently encountered issues, we launched the "Margin Account Mini-Classroom" series, which breaks down the core mechanisms of margin accounts using simple examples, from financing limits, interest rates, and purchasing power to short selling, margin requirements, and risk management.
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