Margin Trading

Borrowing money from a broker to buy more securities than you could with cash alone.

What Is Margin Trading?

Margin trading means borrowing money from your broker to purchase more stock than you could with your own cash. If you have $10,000 and use 2:1 margin, you can buy $20,000 worth of stock. The borrowed amount accrues interest.

How Margin Works

• Initial margin: Typically 50% — you must put up at least half the purchase price in cash.
• Maintenance margin: Usually 25-30% — if your account equity falls below this threshold, you get a margin call.
• Margin call: The broker demands you deposit more cash or sell positions. If you can't, they'll liquidate your holdings — often at the worst possible time.

Margin and Earnings Risk

Holding leveraged positions through earnings reports is extremely risky. A 10% gap down on a 2:1 margin position means a 20% loss on your equity. Many experienced traders reduce or eliminate margin before earnings to avoid catastrophic losses from unexpected misses.