Margin trading, aka buying on margin, is the practice of borrowing money from your stock broker to buy stocks, bonds, ETFs, or other market securities. When you buy any of these investments on margin, the investment itself is used as collateral for the loan. By trading on margin, investors can increase their buying power by up to 100%. Here's how it works: Let's say that you decide to buy $10,000 worth of XYZ stock. You pay $5,000 in cash and borrow — buy on margin — the other $5,000. Now imagine that your investment grows by 25% to $12,500. In this example, your actual return on investment would be 50%, since your cash outlay was only $5,000. The example above may sound pretty great. But keep in mind that margin trading amplifies losses just as it does for profits. If your $10,000 investment decreased by 25% to $7,500, you'd effectively lose 50% on the trade. It's also important to keep in mind that brokers don't lend margin funds for free. Like other loans, margin loans are charged interest. Margin rates are generally lower than the annual percentage rates (APR) of personal loans and credit cards, though, and there is typically no set repayment timetable. Since margin positions are often held for relatively short periods of time, interest charges are typically reasonable. However, the longer your margin loan remains unpaid, the more you'll want to consider how interest costs could impact your returns.