Through margin, you put up less than the full cost of a trade, potentially enabling you to take larger trades than you could with the actual funds in your account.Īnother potential benefit of using margin is the possibility of diversifying beyond traditional stocks. Margin provides “leverage” that, by taking on greater risk, could enhance returns. With margin trading, you’re only required to deposit a percentage of the notional value of a given security, which can juice your buying power. You get more bang for your trading buck-or at least, that’s the idea. ![]() Here are a few basic questions and answers about margin trading. Leverage is aimed at magnifying gains but also creates the possibility for greater losses. ![]() However, the underlying premise is the same: Margin creates leverage through either borrowing money or putting up less of your own funds for a trade. That’s understandable, because margin rules differ across asset classes, brokerages, and exchanges.įor example, trading stocks on margin-under Regulation T, or “Reg T”-is quite different from portfolio margin or trading futures, which also creates leverage. Many investors are familiar with margin or margin trading but may be fuzzy on exactly what it is and how it works. ![]()
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