How It Works
In margin trading, by depositing margin with a securities firm, an investor can buy or short-sell stock up to an amount determined based on the collateral value of that margin. Because it allows trading in amounts that exceed the investor's own funds, both potential gains and potential losses tend to be amplified (this is known as leverage).
System Margin Trading and General Margin Trading
There are two types of margin trading: "system margin trading," in which matters such as the repayment deadline are set based on exchange rules, and "general margin trading," in which the terms are agreed between the securities firm and the investor. If the market moves against a position, a decline in the maintenance margin ratio may result in a demand for additional margin (a margin call), so it is necessary to fully understand the risks before considering using margin trading.