Margin trading lets an investor buy (or short) more shares than they could with only their cash by borrowing funds (or stock) from a broker. It increases both potential gains and potential losses because you’re using leverage.

How it works — the basics

• Margin account: You open a margin (or leveraged) account with a broker. This is different from a cash-only account.
• Initial margin (deposit): To open a leveraged position you must put up a portion of the trade value in cash or securities — the broker’s required initial margin. That is your equity.
• Borrowed amount: The broker lends the remaining portion; the combined cash + loan buys the securities.
• Interest: The broker charges interest on the borrowed portion until it is repaid.
• Maintenance margin: After the trade, you must keep a minimum level of equity in the account (maintenance margin). If your equity falls below that level, the broker issues a margin call.
• Margin call / liquidation: On a margin call you must deposit cash or sell holdings to restore required equity. If you don’t, the broker can liquidate positions (sometimes without prior notice) to bring the account back into compliance.

Simple numeric example

• You want to buy 200 shares at INR 100 each = total cost INR 20,000.
• Broker’s initial margin requirement = 50% (example only; actual requirement varies).
• You put up INR 10,000 of your cash; broker lends INR 10,000.
• If the stock rises to INR 140, value = INR 28,000. Your equity = 28,000 − 10,000 loan = INR 18,000. Return on your INR 10,000 = +80% (before interest/fees).
• If the stock falls to INR 70, value = INR 14,000. Equity = 14,000 − 10,000 = INR 4,000. Your loss = INR 6,000 (−60% of your original INR 10,000). If equity drops below maintenance margin, you get a margin call.

Short selling with margin

• To short a stock, the broker lends shares that you sell now with the obligation to buy back later. You must post margin (collateral) because the short position can have unlimited loss if the stock rises. Interest/borrowing fees may apply, and sometimes a “borrow fee” if shares are hard to borrow.

Key costs and rules to watch

• Interest on the borrowed funds (varies by broker).
• Transaction fees, taxes, and any borrowing/stock-lending fees.
• Maintenance margin level and margin-call policy (varies by broker and regulator).
• Some brokers restrict margin for certain securities (illiquid, highly volatile, or new issues).
• Brokers can liquidate positions at their discretion and may do so quickly in volatile markets.

Risks (why margin is dangerous)

• Amplified losses: Leverage multiplies losses as well as gains.
• Margin calls and forced sales: You may be required to add funds at short notice; forced liquidation can realize large losses.
• Interest and fees reduce returns.
• Possibility of owing more than your deposit in extreme moves (in rare cases).
• Short positions can produce unlimited losses as price rises.

Benefits (why people use margin)

• Increased buying power—can magnify profitable trades.
• Short selling enables profit from falling prices.
• Can be used for short-term tactical positions (e.g., intraday or swing trades).

Practical tips / best practices

• Know the broker’s exact margin rates, maintenance requirements, and margin-call procedures before trading.
• Use stop-loss orders and position-size carefully to limit downside.
• Avoid using full available margin — keep a buffer to reduce margin-call risk.
• Monitor positions frequently, especially in volatile markets.
• Consider interest cost vs. expected return; margin is usually for short- to medium-term trades, not long-term buy-and-hold.

Legal/regulatory note

• Margin rules and allowed leverage differ by country, broker, product (cash equities, derivatives, intraday), and sometimes by the stock itself. Always confirm the exact rules, interest rates and limits with your broker or the local regulator (for example SEBI and exchanges in India) before trading.

If you want, I can:

• Walk through a worked example using numbers you give.
• Compare margin/leverages offered by types of brokers (retail broker vs. full-service) and common interest/fee considerations.
• Explain margin trading for derivatives (futures/options) which uses different margin mechanics.