Margin is defined as the number of the funds pledged in the brokerage account, which is taken as an insurance deposit when borrowing money for participating in trading activities. An initial and minimum margin may appear on the market. The initial margin is the collateral for a new trade. It is calculated by multiplying the asset’s value by the risk rate. The minimum margin is to ensure that an already open position is maintained.
Usually, “the minimum margin of one liquid asset is equal to half of the initial margin”. For example, in a rising market, an investor buys securities and increases the volume of purchased securities using his own and borrowed funds. As a result, the investor increases the possible profit with the market’s growth. At the same time, the risk of losses increases if the market falls.