Margin
Definition
Margin is borrowed capital from your broker that lets you control a larger position than your cash balance would otherwise allow — a $25,000 account with 4:1 intraday margin can control up to $100,000 in positions, amplifying both profits and losses proportionally.
Example
“I had $30,000 in my account but was using 3:1 intraday margin to put on a $90,000 position. When the trade went 2% against me, it was a $1,800 loss — not $600. Margin magnifies everything.”
Detailed Explanation
Margin is a double-edged sword. On winning trades, it multiplies your returns dramatically — a 1% move on a $100,000 position is a $1,000 gain in an account with only $25,000 actual capital, a 4% return on capital in one trade. That leverage is why day traders use margin. But the exact same math applies to losses: a 1% adverse move is a 4% hit to your actual capital. This is why position sizing is even more critical when trading on margin — your risk per trade should be calculated on the actual dollar risk, not the notional position size, and that risk should be expressed as a percentage of your real account equity, not your leveraged buying power.
Intraday margin (day trading buying power) and overnight margin are very different. Most US brokers grant 4:1 buying power for intraday trades — meaning for positions opened and closed the same day. If you hold a position overnight, margin drops to 2:1. If you take a position sized for intraday leverage and forget to close it before the market closes, you may get a margin call the following morning requiring you to deposit funds or liquidate to get back under your overnight limit. These "margin call surprises" are a common painful lesson for new traders.
There's also the PDT (Pattern Day Trader) rule to understand if you're in a US-based margin account with under $25,000. Accounts below that threshold are restricted to 3 round-trip day trades in any 5-business-day rolling window. The $25,000 minimum is the threshold that unlocks unrestricted day trading activity. Many traders below this threshold use a cash account instead to avoid PDT restrictions, though cash accounts have their own settlement rules (funds from a sale must settle — typically 2 days — before you can reuse them).