Margin is the amount of money required to be deposited by an investor in order to open or maintain a position in a margin account. Margin is used to provide collateral for a loan, which allows investors to trade securities with leverage. In other words, margin allows investors to control a larger position in the market than they could otherwise afford, by borrowing money from a broker.
In the context of stock trading, margin trading is the practice of buying and selling securities using leverage, which allows investors to control a larger position in the market than they could otherwise afford. When an investor opens a margin account, they are required to deposit a certain percentage of the total value of the trade as collateral, known as the initial margin.
The amount of margin required can vary depending on the securities being traded, the market conditions and the broker’s policies. Additionally, investors are required to maintain a minimum margin level, known as the maintenance margin, in order to keep their position open.
It’s important to note that margin trading can be risky as it allows investors to control a larger position in the market than they could otherwise afford, which can result in larger potential gains, but also larger potential losses. Additionally, if the value of the securities in a margin account decreases, the investor may be required to deposit additional collateral, known as a margin call.