Dictionary / Trading and orders
What Is Margin Trading?
Margin trading means buying stocks with money borrowed from your broker. It makes gains bigger, but it makes losses bigger too.
How it works
You have $10,000 and borrow $10,000 more on margin. You buy $20,000 of stock. If it rises 10%, you gain $2,000, which is 20% on your own money. If it falls 10%, you lose $2,000, also 20% of your money. You also pay interest on the loan.
What is a margin call?
If your stocks fall too far, the broker demands more cash or shares. That is a margin call. If you cannot pay, the broker can sell your stocks without asking, often at the worst moment.
Why margin is risky
Losses can be larger than the money you put in. In a crash, forced selling by margin traders pushes prices down even further. Margin is a tool for experienced traders, not beginners.
See it in real companies
Open a company to see what it sells and how it makes money.