Glossary · Risk · Beginner-friendly
Margin trading
In plain English
Margin means borrowing money from a broker to buy more. Gains and losses get bigger - and you can be forced to sell if the account falls too far.
Everyday analogy: Buying more gear with a credit card - great when prices rise, painful when they fall and the bill comes due.
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Why it matters
Margin turns ordinary volatility into survival risk. Forced selling often hits when prices are worst.
A bit more detail (optional)
How leverage works
You put up collateral; the broker lends the rest. A 10% move in the stock is a larger percent move on your equity - both ways.
Margin calls
If the account equity drops below maintenance requirements, the broker can demand cash or sell positions - often at the worst time.
Simple examples
Forced exit
A leveraged long survives a −8% dip but fails a −18% gap. The broker liquidates; the rebound never helps that account.
Margin call cascade
A leveraged long survives mild dips, then a gap breaches maintenance. Liquidation locks in losses before any rebound.
Easy mistakes to avoid
- Only imagining the upside of leverage
- Ignoring forced sales after a sudden gap
- Sizing for the upside only
- Ignoring maintenance margin and overnight gaps
- Confusing “I can afford the interest” with “I can survive a gap”
Remember: Margin multiplies outcomes - including the ones you cannot emotionally or financially survive.