The most significant advantage of margin trading is that it can help amplify your returns on investment. Here is an example:
Suppose you have $10,000 in cash, and the market price of a stock is $100, with a margin of 50%. You can buy 100 shares with your own cash and borrow another $10,000 from Moomoo Financial Inc. to buy another 100 shares, with the shares you previously bought as collateral. Now you hold 200 shares ($100 per share) through margin trading, and the market value of your position is $20,000.
When the stock price rises by 50% to $150 per share, the market value of your position becomes $30,000. Since the funds you borrowed from Moomoo Financial Inc. remain unchanged at $10,000, your equity rises to $20,000.
Short selling is a strategy commonly used when you believe the price of a stock is about to fall. For short selling, you do not own the stock yourself; instead, you need to borrow it from a brokerage and sell it. When the stock price falls, you buy back the stock and return it to the brokerage, thus earning the spread. Here is another example:
Suppose the market price of a stock is $100 per share, and you think the stock price will fall in the future. You first borrow 100 shares of the stock from a brokerage and sell them. Now you have $10,000 in cash due to the sale, while the number of shares becomes -100. After a period of time, the stock price drops to $50 per share. Now you only need to spend $5,000 buying 100 shares of the stock and return them to the brokerage. The remaining $5,000 is your return on short selling.