Definition
Margin Trading involves borrowing funds from an exchange to increase position size beyond available capital. Traders post collateral, known as margin, to open leveraged positions.
Margin trading can increase potential returns but also increases the risk of losses and liquidation.
Example in Context
A trader deposits $2,000 and uses margin to open a $10,000 position, increasing exposure to market movements.
FAQs
Is margin trading the same as leverage?
Leverage is the mechanism that allows increased exposure. Margin trading refers to the broader practice of trading with borrowed funds.
Is margin trading riskier than spot trading?
Yes. Losses can exceed initial capital allocated to a position, depending on margin mode and leverage used.
Do all exchanges offer margin trading?
Availability varies by exchange and jurisdiction.