Suppose you have $5,000 in your trading account, and you’re interested in buying this stock that is trading at $10 per share. Normally, you’d only be able to purchase 500 shares [$5,000 / $10 = 500]. If ABC shares increased by $5 a share, you would make a profit of $2,500. However, with margin accounts, you can borrow money from us by using the assets (cash/investments) in your account as collateral for the loan. Equities with a 30% margin requirement will allow you to buy securities by paying only 30% of the trade value upfront while borrowing the remaining 70%. Equities with a 50% margin requirement, can be purchased by paying just 50% of the trade value upfront and borrowing the remaining 50%.
Each exchange-listed security has its own margin requirement. To check the rate for securities, log in to your trading platform, go to Level 1 and look for Long MR for long requirement position or Short MR for short positions. Instead of investing just the $5,000 as described in the previous example, margin account holders can purchase up to $10,000 of company ABC or 1,000 shares by borrowing $5,000 from us (given the security has a 50% margin requirement). That same $5 price increase would result in earning a $5,000 profit in comparison to the $2,500 profit earned by the trader in the first example who only invested his own cash amount of $5,000.
On the other hand, buying on margin can also result in larger losses when securities decline in value. When borrowing to invest, you’re required to maintain a certain amount of assets in your account (in the form of cash or securities) as collateral for your loan. A margin call is triggered when the combined value of cash or securities in your account used as collateral drops below the minimum required amount.