Margin is the difference between a product or service’s selling price and its cost of production or to the ratio between a company’s revenues and expenses. It’s expressed as a percentage of the selling price or revenue.

Gross Margin vs. Profit Margin

Gross margin refers to the difference between revenue and cost of goods sold (COGS), excluding any other expenses. It measures how efficiently a company uses its resources to produce goods or services. Profit margin, on the other hand, considers all expenses, including operating expenses, taxes, and interest, providing a broader view of a company’s profitability.

Calculating Margin

To calculate margin, you divide the difference between the selling price and the cost by the selling price. For instance, if an item costs $80 and sells for $100, the margin would be ($100 – $80) / $100 = 0.20 or 20%.

Margin Trading

Margin trading involves borrowing funds to buy securities. It allows investors to leverage their investments, potentially increasing returns but also amplifying losses. In margin trading, the securities in the investor’s account act as collateral for the loan.

Types of Margin

There are different types of margin, including gross margin, profit margin, operating margin, and net profit margin. Each provides insights into different aspects of a company’s financial performance.