Margin Trading

Margin trading lets you borrow money from your broker to increase your buying power. With a margin account and $10,000 cash, you might buy $20,000 worth of stock — $10,000 of yours and $10,000 borrowed from the broker. This 2:1 leverage means a 10% gain on the stock produces a 20% gain on your cash, minus interest. The leverage works both ways. A 10% loss on the stock becomes a 20% loss on your cash, plus interest charges on the borrowed amount. In extreme cases, losses can exceed your initial investment, leaving you owing money to the broker. Brokers charge interest on margin loans, usually in the 6-12% annual range depending on the broker and amount borrowed. This interest accrues daily and reduces your returns. For short-term trades, the interest cost may be minimal. For long-term holdings, it's a significant drag. A margin call occurs when your account equity falls below the broker's maintenance requirement (usually 25-30% of the total position value). When this happens, you must deposit additional cash or sell positions to restore the minimum equity. Brokers can liquidate your positions without notice during severe margin calls. Margin is appropriate for experienced traders who understand the risks and use it strategically — not for buy-and-hold investors or beginners. Regulations limit stock margin to 2:1 (50% initial margin); crypto platforms may offer higher leverage (5x, 10x, or more) with correspondingly higher risk.