What is margin trading, and how does it work?

Margin trading lets you borrow funds to trade more than you could with just your own money. Here’s how it works:

1. Borrowing Funds: When you trade on margin, you borrow extra money from the exchange to increase the size of your trades. This can boost your potential profit but also increase your risk.
2. Leverage: Margin trading uses something called "leverage." For example, with 5x leverage, for every $1 you put in, you can trade as if you had $5. So, small price changes can lead to bigger gains—or bigger losses.
3. Collateral: You need to put up some of your own money, called collateral or "margin," as security in case the trade doesn’t go your way. If the market moves against you, the exchange can take your margin to cover losses.
4. Risks: While margin trading can lead to higher profits, it can also lead to significant losses, especially if the market moves quickly in the wrong direction.

In short, margin trading can help you trade larger amounts but be cautious, as it comes with higher risk.