What is margin trading, and how does it work?

Margin trading allows users to open larger positions by using borrowed capital, increasing both potential gains and potential losses. Instead of committing the full value of a trade upfront, the trader deposits a fraction of the total position value — known as margin — and the platform provides the remaining exposure through leverage. This mechanism makes trading more capital-efficient but also introduces a higher level of risk.

In practice, margin trading works through a straightforward process. The trader selects an instrument, chooses a position size, and the platform automatically calculates the required margin based on the instrument's leverage ratio. If sufficient free margin is available, the position is opened, and the trader's account is now exposed to the full notional value of the trade. For example, with 1:20 leverage, a trader depositing €500 in margin can open a position worth €10,000 — meaning that every 1% move in the market results in a €100 change in the account, which is 20% of the original margin deposited.

While this amplification can enhance returns when the market moves favourably, it works equally in the opposite direction. Losses are also magnified relative to the margin deposited, and in volatile conditions, they can accumulate quickly. If the account equity drops below the required maintenance margin level, the platform may issue a margin call or close positions automatically to prevent further losses. For this reason, margin trading requires a disciplined approach to risk management, including careful position sizing, consistent use of stop-loss orders, and a commitment to only trading with capital that one can afford to lose.