When trading on margin, an investor uses funds borrowed from a broker to buy or short assets. Instead of paying the full cost up front, the investor deposits a portion—called the initial margin—and the broker lends the rest. The assets bought with margin then act as collateral for the loan.
Margin increases both potential gains and potential losses. If the trade moves in the investor’s favor, returns grow faster because the position size is larger than it would be using only cash. But if the trade moves against them, losses can grow quickly. If losses become too large, the broker may issue a margin call, requiring the investor to deposit more money or close part of the position.
Margin is used across markets, including stocks, forex, futures, and crypto. Brokers set margin requirements based on the asset’s volatility, regulatory rules, and their own risk controls. Responsible margin use requires understanding risks, keeping enough capital in reserve, and tracking market volatility closely.
Margin allows traders to amplify opportunities, but it also increases exposure and risk. Managing margin responsibly is essential to avoid forced liquidations and unexpected losses.
Margin is the amount of money you must deposit to open a leveraged position. Leverage is the ratio that shows how much of the position is borrowed. For example, using $1,000 of your own funds (margin) to control a $10,000 position means you’re using 10:1 leverage. Margin is the capital you contribute; leverage describes the total size of the position.
A margin call occurs when losses reduce your account equity below the broker’s maintenance margin requirement. To protect against further losses, the broker asks you to deposit more money or reduce the position. If you don’t act in time, the broker may close positions automatically. Margin calls help brokers manage risk, but they can be stressful and costly for traders.
Requirements depend on asset volatility, market conditions, regulations, and the broker’s internal risk policies. More volatile assets require higher margin because they can move quickly against a trader. Margin requirements may also change during high-risk events like earnings reports, central bank decisions, or periods of market stress.
A trader uses $2,000 of margin to open a $20,000 stock position. When the stock rises 5%, the trader earns $1,000—much more than they would have earned without margin. But if the stock falls 5%, the same $1,000 is lost just as quickly.
