Margin trading refers to the practice of using borrowed funds from a broker to trade a financial asset, which forms the collateral for the loan from the broker. A trader can borrow an investment through margin trading by selling a portion of their shares of an investment to a broker in exchange for cash or by borrowing funds which will be repaid in the form of interest payments at specific intervals and/or upon liquidation of another portion of assets held by the investor. When done legally, this is known as Margin Funding Agreement (MFA).Margin trading is the practice of using borrowed funds from a broker to trade a financial asset, which forms the collateral for the loan from the broker. The use of margin has grown significantly over the past decade.Margin trading, also known as leveraged trading, is the practice of speculating on the exchange of securities without having any ownership of those securities.To take an example from our daily lives; if you were planning to buy a new car, you would need to get a down payment of 10% (the total value of your car and the loan amount) from a lender called a “car dealer.” Your car dealer will lend you some money against your vehicle as collateral, and as an agreement between you and them, he can dictate how much money that he wishes to lend. If a day or two before you intend to take possession of your vehicle something unexpected happens—you get an offer for $150000 for your automobile—then the car dealer will not have enough money to cover the whole amount required by you; so he'll return the $10000 cheque and keep the remaining $75000 in his possession until such time when it's possible that he'll return it & allow you to go ahead with your car purchase.Margin is the use of borrowed money to fund the purchase of an investment, often securities or commodities. It is also used to speculate on market movements. Margin trading basically refers to the practice of trading financial assets through borrowing funds from brokerage firms.For example, let's say you want to buy 10 shares of Google for $180. The price is $840/share. If you go to a bank and get a loan of $740, then you could purchase 10 shares of Google. However, this is done with a margin account, since the original share price was higher than the value of the loan ($840 – $740 = $80). So instead of paying $8000 for your investment (10 shares), you will have only paid $8000 +$800 = $8100 which is called "margin."It's important to understand that this money from the broker isn't really yours: it's called margin because it's borrowed from the "margin" account. The margin account must be paid back with interest at an agreed upon rate on all loans (and if no agreement is made by both parties to terminate the margin account early).
