1. Margin Trading: Introduction
  2. Margin Trading: What Is Buying On Margin?
  3. Margin Trading: The Dreaded Margin Call
  4. Margin Trading: The Advantages
  5. Margin Trading: The Risks
  6. Margin Trading: Managing Risks
  7. Margin Trading: Conclusion

Here’s a summary of the key points covered in this Tutorial:

  1. Margin trading refers to the practice of using borrowed funds from a broker to trade a financial asset, which forms the collateral for the loan from the broker.
  2. Margin means the amount of funds contributed to a margin account from your own resources, and is also referred to as your equity.
  3. Margin debt refers to debt that you take on in a margin account.
  4. You will receive a margin call when your equity falls below the minimum threshold set by your broker – also called maintenance margin – which is between 30% and 40% at most brokerages.
  5. Minimum margin means the minimum amount that has to be deposited in your margin account  before you can commence trading; while FINRA has this at $2,000, most brokerages have higher thresholds.
  6. Initial Margin is the portion of the purchase price that you deposit when you buy a security on margin. Since you may borrow up to 50% of the purchase price of marginable securities, according to Regulation T of the Federal Reserve Board, your initial margin will be at least 50% of the purchase price.
  7. Not all securities can be purchased on margin.
  8. In order to rectify the margin deficiency that results in a margin call, you may have to deposit cash or marginable securities in your margin account, or alternately, liquidate a portion of the stocks purchased on margin.
  9. Advantages of buying on margin are that you can leverage your gains by buying more than you could if you were doing so on a cash-only basis; take advantage of trading opportunities; diversify your portfolio; and generate carry trades.
  10. The risks of margin trading are that your losses are amplified; you may have to deal with margin calls and forced liquidation; interest charges on margin accounts can add up; and you have to be extra vigilant in monitoring your accounts and portfolios.
  11. You can partially mitigate the risks of margin trading by avoiding being heavily leveraged; using margin only for short-term, opportunistic trading; using margin for a diversified portfolio; having a risk management plan; and being prepared to think like a trader and take losses. 
  12. Margin trading is best left to sophisticated traders and high-net worth investors who are conversant with its risks. The average investor will be better off investing for the long term in a cash account, rather than trading for the short-term in a margin account.


We must emphasize that this tutorial provides a basic foundation for understanding margin trading. It is meant to serve solely as an educational guide, and is not intended to provide advice about trading on margin











Related Articles
  1. Trading

    Margin Trading

    Find out what margin is, how margin calls work, the advantages of leverage and why using margin can be risky.
  2. Investing

    Buying on Margin

    When an investor buys on margin, he or she pays a portion of the stock price – called the margin -- and borrows the rest from a stockbroker. The purchased stocks then serve as collateral for ...
  3. Investing

    Explaining Initial Margin

    Initial margin is the percentage of a stock’s price an investor must have in his account to buy that stock on margin.
Frequently Asked Questions
  1. Do interest rates increase during a recession?

    Learn why interest rates do not rise in a recession; in fact, the opposite happens. Identify the factors that reduce interest ...
  2. What is the difference between deflation and disinflation?

    Learn what deflation and disinflation are, how supply and demand affect price levels, and the difference between deflation ...
  3. What rights do all common shareholders have?

    Learn what rights all common shareholders have, and understand the remedies that can be taken if those rights are violated ...
  4. What does CHIPS UID mean?

    Learn what CHIPS UID stands for and how it facilitates the transfer of funds as the back-end of the ACH network for both ...
Trading Center