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Margin Trading Overview

What is Margin Trading?

There are two margin definitions. Securities margin is borrowing money to buy stock. However, commodities margin involves putting in your own cash as collateral for the contract.

Margin borrowing is only for experienced investors with high risk tolerance. You may lose more than your initial investment.

Before trading on margin, understand the following risks

Losses may be greater than the value of initial investment
Greater potential risk of loss
Additional costs from margin interest charges
Potential margin calls or liquidation of securities

Benefits of a Margin Trading

Use the cash or securities in your account as leverage to increase your buying power.

Get the lowest market margin loan interest rates of any broker.

Diversify trading strategies with short selling, options and futures contracts, or currency trading.

Borrow against a margin account at any time and repay the loan on your own schedule.

How Trading Securities on Margin Works

Rules-based vs. Risk-based Margin

Margin models determine the type of accounts you open and the type of financial instruments you may trade. Trading on margin uses two key methodologies: rules-based and risk-based margin.

In rules-based margin systems, your margin obligations are calculated by a defined formula and applied to each marginable product. This is the more common type of margin strategy used by securities traders.

In risk-based margin systems, margin calculations are based on the risk inherent in your trading portfolio. The positions in your account are evaluated, including any hedged positions that decrease potential risk, and based on their risk profile, used to create your margin requirements.

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