Margin trading refers to the practice of using borrowed funds from a broker to trade a financial asset, which becomes the collateral for the loan from the broker. Traders are allowed to buy stocks by paying a marginal amount of the actual value.
Margin trading can be considered as leveraging positions by traders in the market either with cash or security. The margin can be settled later when traders square off positions.
In order to avail the margin trading facility (MTF), traders need to have a margin account with the broker. The margin varies across brokerages. Traders need to pay a certain sum (minimum) at the time of opening the MTF account. At the same time, they are required to maintain a minimum balance at all times. An interest rate is charged by the broker on the amount funded. In case he fails to maintain the minimum balance, his trade gets squared off.