Margin

Margin refers to the amount of money or securities deposited by an investor with their broker when opening a brokerage account to cover some or all of the potential losses the investor may incur in their trading activities. Trading on margin allows investors to leverage their positions, meaning they can gain exposure to a larger position than their initial investment would normally allow.

Types of Margin

There are two main types of margin - initial margin and maintenance margin. Initial margin is the amount of funds required to open a new position, while maintenance margin is the minimum amount of funds required to keep the position open. If the account balance falls below the maintenance margin level, the broker may issue a margin call, requiring the investor to deposit additional funds to bring the account back to the required level.

Risks of Margin Trading

While trading on margin can amplify gains, it also amplifies losses. If the market moves against the investor's position, they may face significant losses and be required to deposit more funds to cover the losses. It is important for investors to understand the risks involved in margin trading and to use it wisely and cautiously.