Margin trading means borrowing from your broker to buy more stocks. If you have $10,000 and your broker offers 2:1 margin, you can buy $20,000 worth of stocks — the broker lends you the extra $10,000, using your securities as collateral.
The math is exciting on the way up: If your $20,000 position rises 20%, you make $4,000 on a $10,000 investment — a 40% return. But a 20% decline means you lose $4,000 — a 40% loss. And if the decline is severe enough, you face a margin call: the broker demands you deposit more money or they forcibly sell your positions.
In India, SEBI allows up to 5x leverage for intraday trading. In the US, Regulation T limits initial margin to 50%. Margin interest rates range from 6-12% annually. Margin trading amplifies both gains and losses — it is a powerful tool for experienced traders but has bankrupted countless beginners who underestimate the risks.