Translation: Margin Trading = Margin Trading

Margin trading is a method that allows investors to execute financial transactions using part of their own funds, with the remaining portion financed according to specific terms and controls. This enables them to trade with a value greater than their available capital.

Simple definition:

It is like having SAR 5,000 and using additional financing to execute a trade worth SAR 10,000. In this case, you are trading with an amount greater than your actual capital, but you also bear greater risks if the investment’s value declines.

Note:

Margin trading can increase potential profits, but it also increases the potential losses. Therefore, it is subject to controls and financial requirements intended to limit risks.

Example:
Suppose an investor has SAR 50,000 and wants to execute a trade worth SAR 100,000 using margin trading.
The investor contributes SAR 50,000 from their own funds, while the remaining SAR 50,000 is financed according to the terms of margin trading.

If the value of the trade increases, the investor may benefit from the increase in the value of the investment based on the full amount. However, if the value declines, the potential loss increases compared with trading using only their own funds.

What does this mean for you?

Greater trading capacity: Margin trading allows investors to execute trades with a value greater than the funds available to them.

Higher level of risk: Using financing increases the potential losses if the market moves against the trade.

Need for risk management: Margin trading requires monitoring the value of the trade and the related financial obligations, as well as complying with regulatory requirements.

Frequently asked question:
Does margin trading mean that investors always earn higher profits?

Answer: No. Margin trading increases the size of the position relative to the capital used, and therefore can increase potential profits, but it can also increase potential losses. Its use is consequently associated with a higher level of risk.