Margin Trading & What It Means

What Does Margin Trading Mean?

If you've ever scrolled through any broker's website or trading platform and seen the option to "trade on margin" but had no clue what that meant, you're not alone. Margin trading sounds super fancy and a little intimidating, but at its core, it's just borrowing money to trade bigger than your wallet would usually allow you to.

The Basics

Margin trading is when a trader borrows funds from their broker to increase the size of a position. Think of it like trading with leverage. You put down a percentage (called the margin), and the broker covers the rest. For example, if you wanted to buy $1,000 worth of EUR/USD but only have $100, margin trading lets you make that happen.

Why Do Traders Use Margin?

Amplified Profits: Bigger trades = bigger potential gains.

More Flexibility: You can open multiple positions without tying up all your cash.

But Hold Up — There's Risk

This isn’t free money. Just as your profits get amplified, so do your losses. If the market moves against you, the loss is based on the full trade size — not just your margin. This can lead to margin calls (aka your broker asking for more funds or closing your positions to prevent bigger losses).

Tip: Always use proper risk management. Know your stop-losses, and never risk more than you’re comfy losing.

Should You Try It?

If you're a newer trader, margin can be tempting, but it's not for the faint of heart. It requires a strong grasp of strategy, risk management, and emotional control. But if used wisely, it’s a powerful tool in your trading arsenal.

Now you understand how trading on a margin can work for you if used wisely and can also work against you if used wrongly.

To open a risk free account, start your trading journey with our recommended broker FBS Markets or click here to register.

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