Margin trading as the name suggests is a method of trading financial assets using funds that are provided by the broker (third party). It is a simple and trouble-free way of building quick money. It involves holding more while paying less. In plain words, investors buy financial assets that they can’t afford to buy. It also refers to intraday trading. For this purpose, a licensed broker lends you money to buy shares and keep them as collateral. In order to do margin trading, it is thereby compulsory to have a margin account with a regulated broker. After depositing the required funds to the broker in case you are required to pay an initial margin or percentage of the total value predetermined by the broker of the respective stocks. The process requires an investor to speculate the stock movement in a particular session.
The pros of this trading are that it gives potential high rewards due to the greater relative value of the trading positions. It is also beneficial in terms of diversification, as traders can open quite a few positions with fairly small amounts of investment capital. In some extreme cases, a margin account can result in major losses, however, managing your risk and opting for the right strategies after understanding the landscape of markets can aid in mitigating risk. Margin trading can be used to open both long and short positions. Margin trading can amplify the profits and losses vice versa. Only discipline and vigilant traders know how to leverage the volatility of the market and make money out of marginal trading.