Why Trade on Margin?

Short Sales

Margin is commonly used in short selling. When you short sell a security, you are betting that the price will decline. Trading on margin amplifies the size of a short, potentially increasing profits. However, the potential for severe losses exists if the trade goes wrong.

Managing Risk

Traders use margin as a risk-management tool to hedge their losses. For example, you can hedge a long bet on an asset by shorting the same asset. This helps balance your portfolio and minimize potential losses.

Margin Calls Are Important

A margin call ensures you have enough funds to cover any shortfall in your account. If the price of a security declines and your account balance falls below the maintenance margin, your broker can issue a margin call. Failure to meet a margin call can lead to the liquidation of your assets.

Disclaimer

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