How is trading on margin different from borrowing?

Quick recap

What if you want to borrow assets from elsewhere?

Let’s make it concrete

Key differences

  • When you are trading on margin, the act of borrowing capital and buying an asset is all rolled into one step. You don’t have to borrow in one place, transfer money to another place, execute a trade, and then remember to do the reverse of all of this when you sell the position and want to pay down your debt.
  • When trading on margin, the asset you purchased is used as collateral for the margin loan. This gives lenders some reassurance that they can recuperate losses in the event of a default, and in return it means that you can borrow more capital and at lower rates than you might otherwise have available.

Up next: Why do some assets require margin?

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