Margin trading is trading in which a user uses borrowed capital to increase the size of a position relative to their own funds.

The trader provides margin as collateral for the borrowed funds. The size of the position relative to the trader’s own capital is determined by the available leverage.

Example

If a trader has $1,000 and uses 5x leverage, the nominal position may be approximately $5,000 under the platform’s rules. A 1% change in the position value corresponds to roughly $50 before fees, interest, and other costs.

The same mechanism works in reverse: losses are calculated on the larger position and therefore reduce the trader’s own capital more quickly.

Liquidation

If the value of the collateral becomes insufficient to maintain the position, the trading venue can forcibly close it. This process is called liquidation.

Exact rules depend on the exchange, margin type, position mode, and trading instrument. Therefore, the same leverage level does not necessarily imply the same risk on every platform.