Margin Trading

Category: finance

The practice of borrowing money from a broker to purchase more stock than you could afford with your cash.

Margin is the "loan-on-stocks." If you have $10k, the broker lends you $10k more. You now control $20k of stock. It is a powerful tool for levered returns, but if the stock price drops, the broker can force a "margin call" where you must add cash or be sold out.

Common Examples

• Margin trading allowed the trader to double their position size, but it also doubled the risk of a catastrophic margin call during the dip.
• We never advise margin trading for inexperienced retail participants due to the potential for irreversible capital loss.