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What is margin trading?
Margin trading is buying or selling with money borrowed from a broker or exchange, using the assets in your account as collateral. It makes a position larger than your own cash allows, which makes both gains and losses larger.
What it means for you
On margin you can lose more than you put in. If prices fall, you can be asked to deposit more on short notice, and the firm can sell your holdings without asking you first, choosing what to sell. Interest on the loan runs the whole time and reduces any return.
A common mistake: “The broker has to warn me with a margin call before it sells my holdings.”
In fact: Under most US margin agreements the firm can sell without notice, can pick which holdings to sell, and does not have to give extra time. Crypto platforms set their own terms.
How it works
Margin is the borrowing and the collateral; leverage is the resulting size of the position relative to your own money. In the US, for stocks, Regulation T lets a broker lend up to 50 percent of the purchase price, and FINRA requires equity of at least 25 percent of the securities' value afterwards; many firms set 30 to 40 percent. Equity is the holdings' value minus the loan. Below the maintenance level, the firm can call for more or simply sell. Futures margin is different: a performance bond, not partial payment. A study of bitcoin perpetual futures found liquidated traders used about 60 times leverage on average.
An example
Say you buy $50 of a coin with $25 of your own and $25 borrowed. If it rises to $75, your $25 gain doubles your money. If it falls to $15, you have lost your $25 and still owe $10, plus interest.
Sources: SEC Investor Bulletin: Understanding Margin Accounts, CFTC Glossary, Cheng, Deng, Wang and Yu: Liquidation, Leverage and Optimal Margin in Bitcoin Futures Markets (arXiv) · checked 4 October 2026
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Educational content, not financial advice. Written by hand and checked against the source named above. Something wrong? Tell us and we reply within two business days.