Skip to content
Know.itKnow.it
Create an animated lesson
On request

This article is free to read. Creating a lesson uses your daily or stored credits; review the language and settings before starting.

How does margin trading work?

FinanceLesson on requestFree to read

Quick answer

Margin trading means borrowing money from your broker to buy more investments than your own cash allows. It can amplify gains, but it equally amplifies losses — and if your investments fall too far, the broker can force you to sell (a margin call).

Step by step

  1. You borrow from your broker to invest more.
  2. It magnifies both gains and losses.
  3. A 'margin call' forces selling if losses mount.
  4. It's a higher-risk form of leverage.

People also ask

How does margin trading work?
You borrow from your broker to buy more than your cash allows, using your investments as collateral.
What is a margin call?
A demand to add money or sell assets when your account value falls below a required level.
Why is margin trading risky?
Leverage amplifies losses, and a sharp drop can wipe out your money and trigger forced selling.