To understand what Margin Trading is, the term, “Margin” needs to be understood first. Margin pertains to the amount of equity an investor possesses in their broker account. When one says “to margin” or “buy on margin”, what this tells us is that money borrowed from a brokerage is used to buy securities. What this entails is that the trader should have a margin account to be allowed to do so.
A Margin Account is a trading account wherein the broker lends the investor money to buy more securities as opposed to what they actually can afford through what their account contains in the first place.
As this is the case, Margin Trading pertains to the practice of using borrowed funds from a brokerage to trade a financial asset. This, in turn, forms the collateral for said loan.