Understanding the Difference Between Margin and Leverage Trading

28.May.2025
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If you’ve just entered the world of trading, you’ve probably come across the terms “margin” and “leverage.”

Both are important concepts that can amplify your trading power but they’re not the same thing.
Many people confuse them, leading to big mistakes.

That’s why today, we’re breaking down the difference between margin trading and leverage in simple words.

By the end of this blog, you’ll clearly understand the difference between leverage and margin, and how both play a crucial role in trading.

Understanding Margin Trading

Margin trading is when a trader borrows money from a broker to buy more assets than they could with their own funds alone. It’s like adding extra fuel to your trading engine but it also comes with risks.

Here’s a simple example: Suppose you have ₹10,000. Your broker offers 5x margin. This means you can buy stocks worth ₹50,000 instead of just ₹10,000.

Margin trading involves two parts:

Your money (also called the initial margin)

Borrowed money from the broker

However, if the market moves against your position, your broker might ask you to deposit additional funds.

This is called a margin call. If you fail to maintain the minimum margin or maintenance margin, the broker can sell your assets without your permission to cover the losses.

Key points:

Margin requirement varies based on asset and broker.

Higher margin gives more buying power but also more risk.

Managing margin carefully is crucial to avoid forced liquidation.

Understanding Leverage Trading

Leverage trading is the ability to control a large position with a small amount of money. It’s the ratio that describes how much your initial investment is amplified.

For example, 5:1 leverage means you can control a ₹50,000 position with just ₹10,000. In other words, you are “leveraging” your small deposit to trade bigger.

Leverage is all about magnifying potential returns, but it also magnifies potential losses. This is why trading and leverage need to be handled carefully.

In forex trading, for instance, brokers often offer leverage as high as 100:1 or even 500:1, meaning traders can control massive positions with very little upfront cash.

Key points:

Leverage is a tool that brokers offer.

It increases both profits and losses.

It’s crucial to manage risks like margin calls and account falls below required levels.

Key Difference Between Margin and Leverage Trading

Now that you know what each term means, let’s see the difference between margin trading and leverage in a simple table:

Factors	Margin Trading	Leverage Trading
Definition	Borrowing funds from the broker to trade more	Controlling a large trade with a small deposit
Focus	Amount of borrowed money	Ratio between trade size and deposit
Risk	Risk of margin call if the market falls	Risk of magnified losses and profits
Requirement	Margin requirement (initial and maintenance)	Leverage ratio decided by broker
Example	Using ₹10,000 to buy ₹50,000 worth of stocks	5:1 leverage allows ₹10,000 to control ₹50,000
Margin Call Involvement	Yes	Yes (through margin account)
Trading Instruments	Common in stocks, forex, commodities	Common in forex, futures, CFDs
Regulatory Limits	Margin rules regulated (example: SEBI, SEC)	Leverage caps based on asset class

Simply put:

Margin is the amount of money you borrow.

Leverage is the multiplier that defines how much you can control with your deposit.

Understanding the difference between leverage and margin trading helps avoid confusion and trading mistakes.

Final Thoughts

Margin and leverage are powerful tools for traders who know how to use them wisely. While margin trading involves borrowing money to increase your buying power, leverage defines how much that buying power can be multiplied.

Knowing the difference between margin and leverage can protect you from unexpected surprises like sudden margin calls or forced liquidations.

Whether you are starting in margin trading vs leverage trading, or comparing leverage trading vs margin trading, always remember:

Start small.

Understand your broker’s policies.

Manage your risk carefully.

The difference between leverage and margin might seem small on paper, but in real-world trading, it can make all the difference between consistent profits and massive losses.

Boost your buying power by 4X! Use Torus Digital’s Margin Trading Facility and expand your investment horizon.

FAQs

What is the difference between margin and leverage?

Margin is the money you borrow from your broker to open a bigger position, while leverage is the ratio that shows how much your initial investment can be multiplied.

What is margin trading vs leverage trading

Margin trading refers to borrowing money to trade more assets, while leverage trading means using a small amount of capital to control a much larger market position.