How does margin trading work?

[proton91]

Hi gurus,

Can someone enlighten me about margin trading? Do you use it?

My colleague was sharing that he is using an online brokerage when every time he buys, he only needs to fork out 20% of the investment, with the remaining 80% on margin.

Just wondering how this works

 

[Prof. Utonium]

To put it crudely;

Investing with money that you may not have. It amplifies your profit but also your potential loss.

x = collateral
y = multiple of leverage = loan with interest
z = limit = x*y = You can buy this worth of stocks instead of just "x" amount.

If you make a profit, can buy new clothes or car.

If you make a loss, can prepare go bankrupt or ....

Quite a detailed explanation here : https://www.dbs.com.sg/personal/articles/nav/investing/quick-guide-to-margin-trading#