💡 A Simple Example

Let’s say you have $5,000 and want to buy shares of a stock trading at $100 each.

• With your own money, you can buy 50 shares.
• On margin, if your broker lets you borrow another $5,000, you could buy 100 shares.

If the stock rises to $110:

• Without margin: You make $500 (50 × $10 gain).
• With margin: You make $1,000 (100 × $10 gain) — double the return on your original $5,000.

But if the stock drops to $90:

• Without margin: You lose $500.
• With margin: You lose $1,000 — double the pain, too.

📉 The Risk: Margin Calls

If your stocks drop too much, your broker might issue a margin call, requiring you to add more cash or sell assets to maintain your minimum margin level.

If you don’t respond quickly enough, the broker can sell your investments automatically, potentially locking in large losses — even without your approval.

📊 Key Margin Terms

• Margin Account A special brokerage account that allows you to borrow
• Initial MarginThe % of the purchase you must fund yourself (usually 50%)
• Maintenance MarginThe minimum equity you must maintain (e.g., 25% of the position)
• Margin CallA demand to deposit more money or sell assets to cover losses

🧠 Why Use Margin?

• Amplify gains on short-term trades
• Take larger positions than you could afford with cash
• Short sell stocks, which requires a margin account

But margin should be used with caution. Losses happen faster, interest is charged on borrowed funds, and forced liquidations can happen at bad times.

🧠 The Bottom Line

Margin trading is borrowing money to invest — which can boost your profits, but also magnifies your risk. It's not for beginners, and even experienced investors use it sparingly.

If you choose to trade on margin, make sure you understand:

• How much you’re borrowing
• What your broker’s margin requirements are
• How quickly things can go wrong in a volatile market

Leverage can be powerful — or dangerous. Use it wisely.