Margin trading has two main aspects: trading with leverage and shorting. In trading with leverage, a trader borrows assets to increase the amount of assets they are trading. By doing so, they magnify the gains or losses of their trade. The borrowed assets are known as a margin loan. To obtain the margin loan, the trader puts up assets that serve as collateral. The terms of the margin loan specify a collateral-to-loan ratio. If the trade falls below the specified ratio, the trade is liquidated and the lender is made whole using the trader's collateral.

Margin trading also includes shorting. In shorting, a trader essentially sells assets they do not own. The short investor borrows an asset and sells it on the expectation that the assets will lose value.

Did this answer your question?