Margin Trading Explained — How Leverage Works
Margin trading lets you buy stocks with borrowed money from your broker. While it amplifies gains, it also amplifies losses and carries significant risk.
How It Works
You deposit a margin (typically 20-50% of trade value) and borrow the rest from your broker. Example: With ₹1 lakh and 5x leverage, you can buy ₹5 lakh worth of stocks. If stock rises 10%, you make ₹50,000 (50% return on your ₹1L). If it falls 10%, you lose ₹50,000 (50% loss).
Margin Calls
If your position drops below the maintenance margin, the broker issues a margin call — you must deposit more money or your position is forcibly liquidated. This can lock in massive losses. Margin calls are the biggest risk of leveraged trading.
When to Use Margin
Experienced traders with strong risk management. Short-term trades with tight stop losses. Never for long-term investing or with money you can't afford to lose. Most retail investors should avoid margin trading entirely.