Let's have a look at the following example. A bullish investor decides to take advantage of share margin financing. The investor finds a stockbroker willing to lend an amount equal to his funds held in a time deposit placed as collateral for the margin loan. This means, if the investor places a RM100,000 fixed deposit as collateral, the stockbroker will lend him an additional RM100,000 to
purchase up to RM 200.000 worth of shares. Interest will be charged on the RM100,000 loan as well as normal transaction charges that include commissions, clearing fees and stamp duty.

If the investor buys double the amount of shares with his original RM100,000 that is, he buys RM200,000 worth of shares, then if the shares go up the investor will earn double the return. For example, if the share goes up from RM9 to RM10, the profit will be RM2 a share. Without margin financing, the profit would only be RM1 a share. This concept is known as leverage, which means to multiply the buying power by borrowing. However, like a double-edged sword, leverage also works in reverse.