Glossary
Margin Trading
Borrowing money to invest more than you have
Margin trading means borrowing money or shares from a broker to invest beyond your own capital. You post part of the amount as margin and borrow the rest.
Gains and losses both expand. Add 10,000 borrowed to 10,000 of your own and buy 20,000 worth: a 10% rise gives you 20%, and a 10% fall costs you 20%.
If the margin ratio drops below the threshold, a margin call arrives. Fail to top up within the deadline and the broker liquidates for you — never at a price you would have chosen.
Borrowed money accrues interest. Rates are not low and charges accumulate daily, so the return you must clear rises with time. Cost drains out even when nothing happens.
The essence of margin trading is that being right is useless if the timing is off. Get the direction correct but get liquidated in the drawdown, and the recovery has nothing to do with you.