Skip to content
GetProfitable
Search
Dictionary

Margin

Money borrowed from a broker to trade, or the collateral you must post to hold a leveraged position.

Margin and leverageA small deposit controlling a much larger position, and the point at which losses trigger a margin call.Position you controlnotional value $100,000your margin deposit: $5,000$100,000 / $5,000 = 20:1 leverageYour deposit absorbs every dollar of loss$5,000$2,500$0Equity leftMARGIN CALLequity has fallen to $2,5000%1%2%2.5%3%4%5%How far the price moves against you
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.

In stocks, margin is a loan: you put up 50% under regulation-t and borrow the rest, paying interest. In futures and forex, margin is a performance bond, not a loan: the initial-margin you post to open a contract.

Margin creates leverage and the possibility of a margin-call. It is also what makes short-selling possible.

Example: with $10,000 and 2:1 stock margin you can buy $20,000 of stock. A 10% drop costs $2,000, which is 20% of your money, plus interest on the $10,000 borrowed.

Related: leverage, margin-call, initial-margin, regulation-t

Educational only, not advice. Spotted an error? Post in Site Feedback.