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Margin Trading Overview

What is Margin Trading?

There are two margin definitions. Securities margin is borrowing money to buy stock. However, commodities margin involves putting in your own cash as collateral for the contract.

View Infographic
Infographic: What is Margin Trading

Benefits of a Margin Trading Account

Leverage Assets

Use the cash or securities in your account as leverage to increase your buying power.

Access Funds

Get the lowest market margin loan interest rates of any broker.

Enable Account for Short Selling

Diversify trading strategies with short selling, options and futures contracts, or currency trading.

Get a Line of Credit

Borrow against a margin account at any time and repay the loan on your own schedule.

Understand the Risks of Margin Trading

Margin borrowing is only for experienced investors with high risk tolerance.
You may lose more than your initial investment.

Before trading on margin, understand the following risks
  • Trading losses may be greater than the value of the initial investment
  • Leveraged investments create a greater potential risk of loss
  • Additional costs from margin interest charges
  • Potential margin calls or liquidation of securities

How Trading Securities on Margin Works

Rules-based vs. Risk-based Margin

Margin models determine the type of accounts you open and the type of financial instruments you may trade. Trading on margin uses two key methodologies: rules-based and risk-based margin.

  • In rules-based margin systems, your margin obligations are calculated by a defined formula and applied to each marginable product. This is the more common type of margin strategy used by securities traders.
  • In risk-based margin systems, margin calculations are based on the risk inherent in your trading portfolio. The positions in your account are evaluated, including any hedged positions that decrease potential risk, and based on their risk profile, used to create your margin requirements.
How Trading Securities on Margin Works
Example profit / loss on stock trade using margin: Bought 100
shares @ $40 (50 shares with cash and 50 shares on margin)

Rated Lowest Margin Fees1 by StockBrokers.com

US Margin Loan Rates Comparison2

$ 25K $ 300K $ 1.5M $ 3.5M
Interactive Brokers
E-Trade
Fidelity
Schwab
TD Ameritrade

Each firm's information reflects the standard online margin loan rates obtained from their respective websites. Competitor rates and offers subject to change without notice. Services vary by firm.

Margin Education Course on Traders’ Academy

Introduction to Margin Trading
  • Getting Started
  • Securities Margin Trading in the US
  • Commodities Margin Trading in the US
  • Margin in Practice Part 1: Trader Workstation (TWS)
  • Non-US Margin Trading
Take Introduction to Margin Trading
Infographic: What is Margin Trading
Futures trading at IBKR

Start trading like a professional today!

Disclosures
  1. According to StockBrokers.com Online Broker Survey 2021: Read the full article Online Broker Reviews, January 18, 2021. "Professionals can take advantage of industry-leading commissions, including the lowest margin rates across all balance tiers".
  2. Annual Percentage Rate (APR) on USD margin loan balances for IBKR Pro as of 2/01/2021. Interactive Brokers calculates the interest charged on margin loans using the applicable rates for each interest rate tier listed on its website. For additional information on margin loan rates, see ibkr.com/marginrates .