Margin Trading

Margin is the money a trader borrows to execute an order when they are unwilling or unable to pay for the entire order up front. Executing an order with margin allows a trader to experience larger returns, both positive and negative. This results in a leveraged position for the trader.

The lender will normally control the borrower’s purchased assets, using them as collateral for the loan. If the value of the assets drops too far, the borrower will get margin called by the lender. The borrower can put up additional funds as collateral to satisfy the margin call.

If the borrower fails to satisfy the margin call then the lender may liquidate their holdings. When a lender liquidates assets they sell them to recover their initial loan, usually at a loss to the borrower. Borrowers will generally pay a percentage based fee for the right to borrow funds.