Buying on margin and a stock perpetual futures contract both let you take a position bigger than your cash on hand — but they create that leverage in completely different ways. Margin lends you cash to buy more shares, and charges interest until you sell. A perpetual futures contract skips the shares entirely: you post collateral, set your leverage, and hold a position that tracks the stock's price, paying a funding rate instead of interest. The practical differences come down to three things — what you post, what it costs to hold, and what happens when the trade moves against you.
TL;DR — Buying on margin means borrowing cash to buy more shares, secured against your account, with ongoing interest and a maintenance requirement that can trigger a margin call. A stock perpetual futures position posts collateral, applies leverage directly to a contract that tracks the stock, and has no borrow and no loan interest — a funding rate takes the place of interest. On an isolated-margin position, the most you can lose is the margin you posted. Same goal — amplified exposure — with different mechanics for cost, collateral, and what happens when the trade goes wrong.
What is "buying on margin"
Buying on margin is borrowing. Your brokerage lends you cash against the value of your account so you can buy more shares than your own money would cover, and you pay interest on that borrowed cash for as long as the position is open. Your holdings act as collateral, and many jurisdictions require an account to stay above a maintenance margin requirement (see e.g., the SEC's maintenance margin requirement.) If the position falls and your equity drops below that requirement, you get a margin call — a demand to add cash or close positions. Miss it and the broker sells your holdings for you.
The details vary by brokerage and jurisdiction. In the US, big brokers like Charles Schwab and Fidelity charge interest on the borrowed balance, calculated daily, and newer entrants like Robinhood and Webull offer margin on qualifying accounts at the standard 2:1. Interactive Brokers, which operates in most major markets, skips the traditional call and liquidates positions automatically when equity hits the threshold. The same tool shows up outside the US too: Moomoo offers stock margin across Singapore and the wider Asia-Pacific, and Saxo Bank runs a margin-lending facility in parts of Europe and Singapore. Leverage limits, interest rates, and how a shortfall gets handled differ by broker and by jurisdiction, but the shape is the same everywhere — a loan secured against your holdings, a running interest cost, and the standing risk of a call. (For the underlying mechanics, see how leverage trading actually works.)
What a stock perpetual futures position is
A perpetual futures contract is a derivative that tracks a stock's price and never expires. You don't borrow shares or cash. You post margin as collateral, choose a direction and a position size, and the leverage applies to the contract itself. Instead of loan interest, the contract stays anchored to the stock's price through a periodic funding rate paid between the long and short sides. There's no maintenance-call-then-sell cycle. Each position has a liquidation price, and if the stock reaches it, the position closes automatically. (Fuller primer: what perpetual futures for stocks are.)
The key difference: how you get liquidated
This is where the two diverge most.
On margin, the trigger is a defined level called the maintenance margin — the minimum equity your account has to keep. A position can sit underwater and stay open, as long as your equity holds above that line. Fall below it, though, and you get a margin call: add cash or the broker sells enough of your holdings to satisfy the requirement. Losses can spill into the rest of your account. Some brokerages, such as Interactive Brokers, skip the call entirely and liquidate the moment equity hits that threshold, with no prior notice.
On a perpetual, there's no call. The position has a set liquidation price. On an isolated-margin position, the loss is contained to the margin you posted there, and the rest of your balance is untouched. In cross margin, your whole balance backs the position — lower odds of liquidation, but more of your account exposed if it goes wrong. Either way, leverage amplifies losses as much as gains.
Side-by-side: buying on margin vs. a stock perpetual
| Buying on margin | Stock perpetual futures | |
| What you put up | Cash, plus the shares you own as collateral | A cash deposit as collateral |
| How leverage is created | Borrowed cash lets you buy more shares than your money covers | Leverage is created synthetically: margin is posted as collateral, while the contract gives exposure to the full notional position. |
| Cost to hold | Interest on the borrowed cash, charged until you sell | A periodic funding rate |
| Long or short | Long is standard; shorting means borrowing the shares first | Long or short by simply choosing a direction |
| When it goes against you | A margin call — top up, or the broker sells your shares | Closes at its liquidation price; with isolated margin, the loss stops at what you posted |
| Max loss | Your whole account balance, and potentially more | The collateral you posted (on an isolated-margin position) |
| Ownership | You own the actual shares | A contract that tracks the price — you hold no shares |
Which mechanism fits which trader?
Margin suits someone who wants to *own more of a stock* and is comfortable managing a loan, interest, and the risk of a call. A perpetual suits someone who just wants amplified directional exposure — up or down — without a borrow, without loan interest, and with a defined floor on an isolated position. Neither removes the core risk: both are leveraged, both can be liquidated, and leverage cuts both ways. The right choice comes down to whether you'd rather hold shares on borrowed cash or hold a leveraged contract with a known liquidation price and a funding cost.
Key terms
Maintenance margin — the minimum equity a margin account must keep; fall below it and you get a margin call.
Margin call — a demand to add cash or close positions when a margin account drops below its maintenance requirement.
Funding rate — a periodic payment between the long and short sides of a perpetual that keeps the contract price aligned with the stock; it replaces loan interest.
Isolated margin — a mode where only the margin assigned to a position is at risk on it, capping the loss to that amount.
Cross margin — a mode where your whole account balance backs a position, lowering liquidation odds but exposing more of the account.
Liquidation price — the stock price at which a leveraged position no longer has enough margin to stay open and is closed automatically.
Sources
- U.S. SEC — Margin: Borrowing Money to Pay for Stocks: https://www.sec.gov/reportspubs/investor-publications/investorpubsmarginhtm.html
- Charles Schwab — Margin Rates and Requirements: https://www.schwab.com/margin/margin-rates-and-requirements
- Interactive Brokers — Margin: https://www.interactivebrokers.com/en/trading/margin.php
- Robinhood — Margin Investing: https://robinhood.com/us/en/support/articles/margin-investing/
- Webull — Margin Account: https://www.webull.com/margin
- Investopedia — Buying on Margin: https://www.investopedia.com/terms/b/buying-on-margin.asp
- Investopedia — Margin Call: https://www.investopedia.com/terms/m/margincall.asp
- CME Group — Introduction to Futures: https://www.cmegroup.com/education/courses/introduction-to-futures.html
- Investopedia — Perpetual Futures: https://www.investopedia.com/perpetual-futures-7484485
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FAQ
- How does margin trading work?
- Buying on margin means borrowing cash from a brokerage against your account to buy more shares than your own money covers. You pay interest on the borrowed cash and must keep the account above a maintenance requirement. If it drops below, you get a margin call to add funds, or the broker sells your holdings.
- What's the difference between margin and a stock perpetual futures position?
- Buying on margin borrows cash from a broker to buy more shares than your money covers, and charges interest on that loan. A stock perpetual works differently: instead of borrowing, you put down a cash deposit as collateral, and a contract that tracks the stock gives you leveraged exposure, with a funding rate as the holding cost. They also handle a bad trade differently — buying on margin can trigger a margin call, while a perpetual closes automatically at a set liquidation price.
- What happens when a leveraged trade goes against you?
- On margin, you get a margin call — add cash or the broker liquidates your holdings, and losses can reach the rest of your account. On a perpetual, the position hits its liquidation price and closes automatically; on an isolated-margin position the loss is capped at the margin you posted.
- Do you pay interest on a perpetual futures position?
- No loan interest. The ongoing cost is the funding rate — a periodic payment between the long and short sides that keeps the contract aligned with the stock's price. It can be positive or negative depending on which side of the trade is more crowded.
- Is a perpetual futures position riskier than margin?
- Both are leveraged and both can be liquidated, so both carry a high risk of loss. The difference is the shape of the risk. Margin adds interest and margin-call risk that can reach your whole account. An isolated-margin perpetual caps the loss at the margin posted but can be liquidated quickly if leverage is high.
- Can you go short with margin and with perps?
- Shorting on margin requires borrowing and locating shares. On a perpetual you go short simply by choosing a direction — no borrow or locate — which is one reason perps are often used for downside positions.
