Margin trading allows investors to use borrowed funds, known as margin, from a broker to amplify potential returns. This leveraged trading strategy enables...
Margin trading involves borrowing money from a broker to buy securities or other assets, allowing traders to open larger positions and potentially magnify profits (or losses) with a smaller initial capital outlay.
Leverage in margin trading allows you to control a larger amount of assets with a relatively small amount of your own capital. For instance, 10x leverage means you can trade $10,000 worth of assets with just $1,000 of your own money.
A margin call occurs when the value of a trader's margin account falls below the broker's required maintenance margin level. This usually prompts the trader to deposit additional funds or liquidate assets to meet the minimum equity requirement.
The primary risks include magnified losses (potentially losing more than your initial investment), margin calls requiring immediate additional funds, and the possibility of rapid liquidation of your positions by the broker if requirements aren't met.
Margin trading is prevalent across various financial markets, including stock markets, foreign exchange (forex), futures, commodities, and many cryptocurrency exchanges, offering leverage across diverse asset classes.