Margin trading definition

Margin trading is the practice of using borrowed funds, or broker-provided leverage, to open positions larger than your own cash would allow. It raises both the potential profit and the potential loss on a trade.

You deposit margin as collateral, and the broker funds the rest of the position. It is common across forex, stocks, commodities, indices, futures, crypto, and CFD markets, where a small deposit can control a much larger exposure.

Margin trading is the method; margin is the deposit that backs it. Because gains and losses are calculated on the full position rather than on the deposit, the same leverage that enlarges a profit enlarges a loss. You contain that risk with smaller position sizes, stop-loss orders, and tighter leverage limits.

Margin trading Example

You have USD 1,000 and trade on margin at 1:10 leverage.

This lets you control a position worth:

USD 1,000 √ó 10 = USD 10,000

If the market moves your way, your gain is based on the USD 10,000 position. If it moves against you, your loss is based on that same full position, not on your USD 1,000.