What does 'margin trading' refer to?

Margin trading refers to the practice of borrowing funds to trade a larger position than one can afford using only cash. This allows traders to leverage their investments, essentially increasing their potential returns by using borrowed money to purchase more securities than they could with their available capital. By doing this, traders can take advantage of market opportunities and amplify their gains when their investments perform well.

However, margin trading also carries increased risk, as it can lead to significant losses if the market moves against the trader's position. In this context, it is important to thoroughly understand the implications and risks associated with trading on margin, as well as the requirements set by brokerage firms regarding the minimum amount of equity that must be maintained in the account.

Other options like investing with cash only, trading stocks without commissions, or selling securities before buying them do not accurately describe margin trading and therefore do not capture the nature of leveraging borrowed funds for trading purposes.