Close this search box.

Table of Contents



Margin, in the financial context, typically refers to the act of borrowing money from a broker to buy securities or the difference between a product’s selling price and its production cost. In trading, it denotes the required collateral to secure a leveraged position, ensuring an investor has enough equity to cover potential losses. In business, margin also refers to the profitability of a company, expressed as a percentage of revenue.


The phonetic pronunciation of the keyword “Margin” is: /ˈmɑr·ʤɪn/

Key Takeaways

  1. Margin refers to the space or difference between an item’s price or worth and the overall cost it takes to produce or maintain it. In finance, it is expressed as a percentage to illustrate profit or loss on investments.
  2. A high margin indicates that a business has more revenue relative to its production costs, which usually implies a strong capability for the company to grow, whereas a low margin implies the opposite, suggesting potential financial difficulties.
  3. In trading, margin also refers to the amount of money or collateral an investor must provide to a broker as security for a leveraged investment, such as buying stocks on margin or trading in futures and options; this margin requirement acts as a safeguard for the broker and the market against potential losses.


Margin is a crucial term in business and finance as it serves as a key indicator of a company’s financial health, efficiency, and profitability. By measuring the difference between a company’s revenue and its cost of goods sold or total expenses, the margin determines the proportion of sales converted into profits. As a vital metric for investors and stakeholders, it helps to evaluate the company’s competitiveness, pricing strategies, and management efficiency. Furthermore, through comparing margin ratios across different periods or against industry benchmarks, it is possible to assess a company’s financial performance and establish potential areas for improvement, ultimately guiding critical business decisions and strategies.


Margin, as a finance/business term, essentially refers to the difference between the cost of producing or purchasing a product and the selling price of that product. It serves as a key metric for companies as it indicates their profitability levels and their ability to control costs efficiently. By consistently maintaining higher profit margins, companies can allocate their resources more effectively, fueling their growth, investing in research and development, and ultimately improving their competitive advantage in the marketplace. CEOs and business leaders regularly monitor and strive to enhance their margin levels since it is vitally important for the financial health and sustainability of any organization. Apart from the direct usage by companies, margin is also a significant tool in the investment world. It is used by analysts and investors to compare the performance of different companies within the same industry, evaluate trends, and make informed decisions on whether to invest or divest from specific stocks or industries. This, in turn, affects the stock prices and the overall market sentiment. Furthermore, the concept of margin is also employed in trading when investors borrow money from their brokers to purchase securities, better known as margin trading. By leveraging their capital through this approach, investors have the potential to generate higher returns, but also carry the inherent risk of inflated losses. As such, margin is a key term not only for organizations but also for investors and finance professionals.


1. Margin Trading: In the stock market, investors can buy securities using funds borrowed from a brokerage firm. This is called margin trading. For example, if an investor wants to buy $10,000 worth of a stock, they can pay $5,000 and borrow the remaining $5,000 from the brokerage firm. The margin in this case represents the portion of the total investment that the investor has borrowed, which increases both the potential gains and the potential losses. 2. Margin of Safety in Financial Analysis: In business valuation or financial analysis, the concept of margin of safety is used to evaluate the risk of an investment. For example, when analyzing a company’s financial performance, an analyst might estimate the company’s future earnings and then compare them to the current stock price to determine the potential upside. If the stock price is significantly lower than the projected future earnings, the investment has a higher margin of safety, which indicates lower risk and a stronger potential for gains. 3. Gross Profit Margin: In business finance, gross profit margin is a ratio that measures a company’s efficiency in generating profit from its sales revenue. For example, if a retail company has total sales revenue of $100,000 and its cost of goods sold (COGS) is $75,000, its gross profit margin would be ($100,000 – $75,000) / $100,000 = 0.25 or 25%. This means that for every dollar of revenue, the company retains 25 cents as gross profit, which can be used to cover operating expenses and generate new growth opportunities. If the company improves its cost management, it can potentially increase its gross profit margin and provide greater returns for investors.

Frequently Asked Questions(FAQ)

What is Margin in finance and business?
Margin refers to the difference between the total value of an investment or financial instrument and the amount of money borrowed to finance the purchase. In simpler terms, it’s the percentage difference between the cost price and the selling price of an investment, product, or service.
How are margins used in investing and trading?
In investing and trading, margins are commonly used as a risk management tool. They allow investors to leverage their capital by borrowing from their brokers to increase their investment potential, thus increasing their potential returns. This is known as margin trading or buying on margin.
What are the different types of margins?
There are several types of margins in finance and business, including operating margin, profit margin, gross margin, and net margin. Each serves a different purpose in assessing the financial performance of a company or investment.
What is a margin call?
A margin call occurs when the value of an investor’s margin account falls below the maintenance level set by the broker. When this happens, the investor must either deposit additional funds to cover the shortfall or sell off some of their investments to satisfy the call.
How is the margin requirement calculated?
The margin requirement is calculated as a percentage of the total value of the investment or financial instrument being purchased. Each broker or regulatory institution may have different margin requirements depending on the type of asset being traded.
What is gross margin?
Gross margin is a measure of a company’s profitability. It represents the difference between the total revenue and the cost of goods sold (COGS), divided by total revenue. The result is expressed as a percentage.
What is the operating margin?
Operating margin is a profitability ratio that reflects the efficiency of a company’s operations, representing the relationship between the company’s operating income and its net sales. It indicates how much profit a company generates from its core business activities.
Can margin trading result in a loss?
Yes, margin trading can result in a loss because it increases both potential profits and potential losses. If the value of the investments goes down, the investor will still be responsible for repaying the money borrowed, plus interest, resulting in a loss.

Related Finance Terms

Sources for More Information

About Our Editorial Process

At Due, we are dedicated to providing simple money and retirement advice that can make a big impact in your life. Our team closely follows market shifts and deeply understands how to build REAL wealth. All of our articles undergo thorough editing and review by financial experts, ensuring you get reliable and credible money advice.

We partner with leading publications, such as Nasdaq, The Globe and Mail, Entrepreneur, and more, to provide insights on retirement, current markets, and more.

We also host a financial glossary of over 7000 money/investing terms to help you learn more about how to take control of your finances.

View our editorial process

About Our Journalists

Our journalists are not just trusted, certified financial advisers. They are experienced and leading influencers in the financial realm, trusted by millions to provide advice about money. We handpick the best of the best, so you get advice from real experts. Our goal is to educate and inform, NOT to be a ‘stock-picker’ or ‘market-caller.’ 

Why listen to what we have to say?

While Due does not know how to predict the market in the short-term, our team of experts DOES know how you can make smart financial decisions to plan for retirement in the long-term.

View our expert review board

About Due

Due makes it easier to retire on your terms. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Get started today.

Due Fact-Checking Standards and Processes

To ensure we’re putting out the highest content standards, we sought out the help of certified financial experts and accredited individuals to verify our advice. We also rely on them for the most up to date information and data to make sure our in-depth research has the facts right, for today… Not yesterday. Our financial expert review board allows our readers to not only trust the information they are reading but to act on it as well. Most of our authors are CFP (Certified Financial Planners) or CRPC (Chartered Retirement Planning Counselor) certified and all have college degrees. Learn more about annuities, retirement advice and take the correct steps towards financial freedom and knowing exactly where you stand today. Learn everything about our top-notch financial expert reviews below… Learn More