Margin Trading

A high-risk trading strategy where the trader uses borrowed funds.

Margin trading refers to the use of trading assets using funds borrowed from someone else. In other words, margin trading is a strategy that relies on trading leverage to increase the amount of investments being made in the form of purchased assets. Thus, the strategy allows the trader to buy and sell well above their means at the time, but also present high risks in terms of possible losses.

Margin trading is popular but has varying regulations from broker to broker. However, the returns on investments are often sizable compared to when trading is done without the marginal account. But, because the trading funds are effectively on loan (with added interests), the risks are considered to be higher than the odds of significant yield.