Margin trading allows opening a position larger than one's own capital. Personal funds serve as collateral, the broker provides the shortfall at interest, and profits and losses are calculated on the full position size.
The leverage effect is symmetrical and therefore riskier than it appears. With a position twice one's own capital, a 10% price move yields 20% profit or loss. If collateral value falls below the required level, the broker demands additional funds, and failure to comply results in forced liquidation at the current price.
Forced liquidation occurs at the worst possible moment—at the peak of adverse movement—and locks in losses permanently, eliminating the chance to wait for recovery. Additionally, borrowed funds carry a cost: interest accrues for the entire position holding period.
On low-liquidity instruments, risk increases further: forced liquidation of a large position in a thin order book occurs at significantly worse prices. For an investor not engaged in professional trading, avoiding margin operations is a prudent default position.