Margin Trading

Margin trading allows traders to borrow funds from a broker to increase their buying power.

By doing so, traders can open larger positions than they would be able to with their cash balance alone — thereby potentially amplifying their gains. Moreover, utilizing margin is essential for the practice of short selling.

However, as useful as margin trading is, it also comes with several potential drawbacks and risks. Just as access to margin can expand your gains, it can accelerate losses.

With that being said, for informed traders who practice proper risk management, access to margin is a useful part of the investing toolkit.

For those who qualify, TradeZero offers margin accounts and platform tools built to support active traders looking for speed, control, and visibility when using leverage.

Margin trading involves borrowing funds from a brokerage to increase buying power beyond what a trader’s cash balance provides. This is referred to as leverage, and allows traders to open larger positions than they would normally be able to. In turn, those larger positions can lead to larger returns (in an absolute sense).

To utilize margin, traders will have to open a margin account. A wide variety of brokerages offer margin accounts, but in all cases, in order to qualify, traders have to meet certain requirements.

When a trader qualifies, they still have to consider two factors — initial margin and maintenance margin. The former is the minimum equity (or balance) that is required to open a leveraged position, and the latter is the minimum equity that has to be maintained in order to keep that position open.

If a trader fails to maintain maintenance margin, they’re liable to face a margin call — but we’ll circle back to that in a few minutes.

TradeZero provides access to margin trading for qualifying accounts, giving active traders the tools they need to execute with precision and scale.

Before a trader can utilize leverage, they have to open a margin account with their brokerage of choice. The exact requirements that have to be fulfilled in order to open a margin account, of course, vary from broker to broker.

In any case, once those criteria are met and the account is opened, the next step is to deposit collateral. This can either take the form of cash or securities, which are used as the equity that underpins any leveraged positions opened afterwards.

With that taken care of, a trader can then borrow funds from the brokerage, and use them to either go long or go short on securities.

Now, let’s backtrack to that margin call we mentioned shortly before. Traders should keep a close eye on their account equity. If it drops below a certain threshold — the maintenance margin requirement, the account could face a margin call. In essence, this means that the trader has to deposit more funds or close out (partially or completely) open positions.

So, what happens if a margin call is ignored? Forced liquidations — the brokerage closes some or all open positions to recoup funds. This usually happens instantaneously — so if you’re in the middle of a trade that hasn’t panned out, it tends to lock in significant losses.

TradeZero helps traders stay aware of these risks and avoid them by offering real-time insight into margin usage, margin requirements, and order types such as stop losses that can be utilized as part of a wider risk management strategy.

Before they begin trading with leverage, traders should be fully aware of both the advantages and disadvantages that margin provides.

Through the increased buying power that margin accounts provide, traders can control larger positions with less capital overall. As we’ve mentioned earlier, this increases the absolute return that successful trades secure. A margin account is also a prerequisite for short selling, which allows traders to profit from decreases in stock prices.

On top of that, access to margin provides traders with a greater degree of flexibility when it comes to diversifying their positions or scaling their trades.

With that being said, the downsides of margin trading are equally as important — if not more so.

Just as trading with leverage amplifies gains, it amplifies losses. In addition, we briefly touched on the topic of margin calls in a previous section. If faced with a margin call, the most straightforward solution for most traders is to deposit additional funds — something that isn’t always possible or convenient. If that’s not an option, traders have to liquidate their positions — either locking in losses, or exiting those positions prematurely, potentially limiting their gains

Moreover, to utilize leverage, traders have to pay interest on the borrowed funds, which reduces overall profitability. Finally, the added psychological pressure and complexity of managing leveraged positions makes it harder to keep a cool head and stay rational — which can ultimately lead to irrational decisions .

Margin trading isn’t suited for beginners or anyone lacking a clearly defined risk management strategy. Responsible use starts with clear rules, strict discipline, and constant oversight . TradeZero offers real-time equity tracking and alert systems to help qualified traders stay informed, manage exposure, and reduce the likelihood of margin calls when markets turn against them.

For traders based in the US, there are two distinct sets of requirements that govern margin trading. The first one is mandated by regulatory bodies — in this case, the Financial Industry Regulatory Authority (FINRA). The second set of requirements is mandated by the actual brokerage that a trader uses.

FINRA requires that traders maintain at least 25% equity within their margin account for most positions that utilize leverage. With that being said, brokerages often impose stricter rules, which can require 30%, 40%, or even higher equity levels, depending on the exact asset in question.

In order to avoid triggering a margin call, traders have to come up and stick with a clear, level-headed risk management strategy. While the specifics will vary from trader to trader, and their personal risk tolerance, utilizing stop-loss orders, and setting a maximum drawdown level are good places to start.

Short positions, in particular, demand even more caution. Because there’s no ceiling on how high a stock can climb, losses on a short trade can become theoretically unlimited. That’s why margin requirements are often higher for shorting, and why real-time tracking of exposure is non-negotiable.

TradeZero’s platform gives traders the tools to monitor their account equity in real time, making it easier to stay ahead of potential issues. Built-in alerts and transparent margin displays give traders the data they need to make informed decisions before a margin call ever happens.

Compliance, discipline, and precision are the pillars of sustainable leverage. By staying aware of the rules, implementing safeguards, and using tools that surface risk early, traders can work to protect their capital while navigating volatile markets.

TradeZero offers a variety of features that make utilizing margin simpler and safer for prospective traders.

The possibility of commission-free trading on U.S. equities allows traders to execute strategies without worrying about commissions eating into profits, while access to hard-to-borrow stocks that can easily be viewed through a user-friendly list makes identifying short-selling opportunities a smooth, streamlined process.

For traders who understand the risks of leverage and want a broker that empowers rather than restricts, TradeZero positions itself as a smart, transparent provider—offering both the flexibility and accountability that margin strategies demand.

Margin trading offers the potential to amplify profits, access short-selling opportunities, and scale trades with greater flexibility—but it also introduces a higher level of risk and complexity.

Sustainable success hinges on discipline, real-time oversight, and a firm grasp of risk management. For experienced traders who meet the requirements and understand the stakes, margin can be a valuable tool. With TradeZero’s suite of margin-focused features, active traders gain the visibility and control they need to navigate leverage with confidence and precision.

This content (“Content”) is produced by Tokenist Media LLC. The Content represents only the views and opinions of Tokenist Media LLC.Tokenist Media LLC’s trading experiences and accomplishments are unique, and your trading results may vary substantially. Tokenist Media LLC is a paid marketing partner of TradeZero that receives compensation from TradeZero for broadcasting, displaying, and/or presenting marketing and sponsorship materials that promote TradeZero. TradeZero does not endorse the Content and makes no representations or warranties with respect to the accuracy of the Content or information available through any referenced or linked third party sites. The Content has been made available for informational and educational purposes only and should not be considered trading or investment advice or a recommendation as to any security.

Trading securities can involve high risk and potential loss of funds. Furthermore, trading on margin is for experienced investors and traders only as the amount you may lose can be greater than your initial investment. Likewise, short selling as a securities trading strategy is extremely risky and can lead to potentially unlimited losses. Options trading is not suitable for all investors as it can involve risk that may expose investors to significant losses. Please read the Characteristics and Risk of Standardized Options, also known as the options disclosure document (ODD) at https://www.theocc.com/Company-Information/Documents-and-Archives/Options-Disclosure-Document before deciding to engage in options trading.

TradeZero provides self-directed brokerage accounts to customers through its operating affiliates: TradeZero America, Inc., a United States broker dealer, registered with the Securities and Exchange Commission (SEC) and member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC); TradeZero, Inc., a Bahamian broker dealer, registered with the Securities Commission of the Bahamas; and TradeZero Canada Securities ULC, a Canadian broker dealer, member firm of the Canadian Industry Regulatory Organization (CIRO) and member of the Canadian Investor Protection Fund (CIPF).