What does the term margin mean in finance. Looking up the word margin in a dictionary gives:

a sum deposited with a broker to cover the risk of loss on a transaction or account

the profit made on a product or service

But what does the term a profit margin mean then? (The first definition doesn't fit in this context. The second one turns 'a profit margin' into 'a profit profit')

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    If I lookup my dictionary, it also says "provide with an edge or border." or "deposit an amount of money with a broker as security for (an account or transaction)." Therefore, "margin is profit" is a fallacy. "margin" could be profit, but it isn't a must. – base64 Dec 31 '20 at 14:57
  • @base64 - I was about to answer similarly, that the word has multiple uses. Do you want to post a full answer? – JTP - Apologise to Monica Dec 31 '20 at 15:01
  • @base64 But both your definitions don't fit in the context - neither of them is meant when 'margin' is used in the phrase 'profit margin' – Daniel Dec 31 '20 at 15:01
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    The word margin has multiple uses in finance. Here's an answer that describes some of them. The are non finance usages as well. In terms of an edge or border, that is a distance relationship such as the "margin on a sheet of paper". – Bob Baerker Dec 31 '20 at 15:17
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    If the OP took the time to use an online dictionary, he could have found hundreds of examples of the usage of the word margin. It took me seconds to find one such site. – Bob Baerker Dec 31 '20 at 15:33

Margin has multiple meanings "in finance". There is a speculation context and a business context.

In the speculation context, margin refers to collateralized borrowing to trade with larger amounts than you have deposited, potentially amplifying your risk or in potentially mitigating risk. Your first definition was referring to this but giving a short definition about the "sum" (the collateral) deposited with a broker.

In the business context, margin refers to the difference between what you spend to do business, and what you earned. If it cost you $10 in gas to transport a crop across town to sell the crop for $15, your margin would be $5. What does "profit margin" mean? It means the $5, its the same as saying "my margin is $5", and in further deeper contexts like accounting and tax you would differentiate between gross margin and net margin. But in colloquial speech with people about running a business selling goods and services, margin and profit margin and profit are synonyms.


In your example, 'margin' is just a shorter way of saying 'profit margin'.

In another context, 'margin' might be a shorter way to say 'gross margin', while 'profit' is a shorter way to say 'net profit'. In that context, 'margin' and 'profit' would be referring to different things.

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