What Is Margin Trading and How Does It Work in Singapore?

Buying on margin means borrowing money from your broker to buy stocks. It can boost your returns but also magnify your losses. 

In this guide, we’ll walk you through margin trading, with real-life examples and practical tips to help you trade smarter.

What is margin trading?

Imagine you’ve found a stock you believe will do well — but you don’t have quite enough cash to buy as many shares as you’d like. That’s where margin trading comes in.

Margin trading, or “buying on margin,” is when you borrow money from your broker to buy stocks. It’s like taking a short-term loan that’s backed by the value of your investments.

Here’s how it works:

1. You deposit a portion of the trade value.

2. The broker lends you the rest.

3. If the stock goes up, you get to keep the profits (after repaying the loan and interest).

4. But if the stock goes down, you still owe the borrowed amount — and that’s where the risk comes in.

» Learn more : Are margin loans the smart way to boost your investments?

An example of buying on margin 

Let’s break this down with real-life scenarios:

Scenario 1: Making a profit with margin

You want to buy 200 shares of a stock priced at $30; that’s a total of $6,000. But you only have $3,000. You borrow the other half from your broker.

The stock price rises to $40. Your total shares are now worth $8,000.

After repaying the $3,000 loan, you’re left with $5,000. That’s a $2,000 gain — doubling what you could’ve made if you only used your own money.

Scenario 2: Taking a loss

If the stock price drops to $20, your shares are now worth $4,000.

After repaying the $3,000 loan, you’re left with just $1,000 — a $2,000 loss.

Scenario 3: Losing more than you invested

If the stock crashes to $10, your total position is now only worth $2,000.

But you still owe the broker $3,000.

After selling everything, you still owe $1,000 out of pocket — on top of losing your initial $3,000.

Key terms in margin trading

Margin trading may sound simple, but there are a few key concepts to understand:

Collateral

When you borrow on margin, your shares and cash act as collateral. If their value drops too much, your broker can sell your assets.

Margin types

Initial margin

The upfront amount you must put in (usually 50% of the trade value). Some Singapore brokers may accept 40% equity.

Maintenance margin

The minimum account value you need to keep your position. In Singapore, it’s commonly 140% of the loan amount.

Soft-edge margin

The soft-edge margin is the level where your broker might start selling your investments to cover losses. This threshold is often raised just before a non-trading day, and lowered once markets reopen.

Loan size and interest rates

You can usually borrow up to 50% of a stock’s value. Interest is charged daily and deducted monthly. Larger loan sizes qualify for lower interest rates, usually starting from ~6% and dropping to ~4.5% depending on the broker. 

Example:

• Borrowing $10,000? You might pay ~6% a year (~$600 in interest).

• Borrowing $100,000? You may qualify for lower interest (e.g., 4.5%).

When you sell, the proceeds first repay the loan, and you keep what’s left.

Understanding margin calls

A margin call happens when your account falls below the required maintenance level.

In Singapore, that’s typically 140% of your loan value.

For example, if you borrowed $3,000, your account must stay above $4,200 (140% of $3,000).

If your account dips below that:

1. Your broker will issue a margin call.

2. You may have just 2-5 days to respond.

3. You can either deposit more money or sell off shares.

4. If you ignore the call, your broker can liquidate your holdings without notice.

Margin calls are common during market dips, so always monitor your positions.

Other risks of margin trading

Margin can work in your favour, but there are some serious downsides:

• Forced selling. You might have to sell at a loss to meet a margin call.

• No control over liquidation. You don’t get to choose which stocks or assets are sold to meet a margin call. The broker decides, and it may not be in your best interest.

• Interest costs can eat returns. Especially if the stock price stays flat or dips.

• Greater exposure to losses. Because you’re trading with borrowed funds, you can lose more than your original investment if the market turns against you.

• Credit risk. Failing to repay a margin loan may lead some brokers to report the default to credit bureaus, which could affect your ability to borrow in future.

• Platform-specific risks. Not all brokers treat margin the same. Some may raise margin requirements suddenly or change liquidation rules, especially during market volatility.

Tips for margin trading

Know your broker’s rules

Every platform has different requirements for:

• Initial margin

• Maintenance margin

• Margin call timeframes

Tip: Read the fine print before placing trades.

Use demo accounts first

Platforms like Webull SG or Interactive Brokers let you practise with virtual money.

Don’t chase trending stocks

High-flying stocks can crash hard and fast. Stick to reliable counters with solid fundamentals.

Keep a trading journal

Track what you bought, why, and how it performed. Reviewing past trades helps you stay objective and avoid emotional mistakes.

Set price alerts and stop-loss orders

Use broker tools to get notified if a stock dips. Some platforms let you auto-sell if prices fall too far.

Margin trading: The bottom line

Margin trading can be a powerful tool but it’s not for everyone.

Yes, it can boost your profits. But it can also wipe out your savings faster than you expect.

If you’re just starting out, take it slow. Practise with demo accounts. Only invest with money you can afford to lose. And remember, your broker will always get paid back, whether you make money or not.