The high level run-down of margin trading is as follows: A trader wants to buy a commodity (whether it be a stock, currency or anything else of value). Let's take apples for example. The trader is motivated by a belief that the value of apples with respect to a stable currency (USD) will increase sometime in the near future. Let's say they currently hold 10 apples for simplicity's sake. Well, if you know something is going to increase in value with respect to something else (in this case apples per USD) then you will want to buy as much of it as possible. The more you buy before it goes up in value, the more profit you stand to make. If the trader has no more liquidity to increase their position, their profit/loss will be based on only the 10 apples when/if they decide to sell.
Margin trading is where you leverage this initial amount, the 10 apples, as a "marginal" amount of collateral to borrow a leveraged amount of USD to be able to buy even more apples. If the trader wanted to leverage their position 3x, they could put up the 10 apples as collateral to borrow $200 USD to buy 20 more apples. Thus for every $1 increase in the price of apples, they are now earning a profit of $30 (ignoring interest, trading costs and slippage) instead of $10. Let's explore the happy case a little further. Say the price doubles from $10USD/apple to $20USD/apple. They sell only 10 apples to cover the initial loan and are left with 20 apples. In this case, they are left with 20 apples, when they only started with 10.
Now, what happens if things go awry. Say the price drops 20% to $8USD/apple. They would have to sell 25 of the 30 apples to pay back the $200 loan. In this case, they would be left with 5 apples. Without leveraging their capital they would have lost only $50. This simple example illustrates the role that this margin ratio provided. The leverage multiplies the returns from the position, whether that be profit or losses.
There is one last catch that hasn't yet been covered. The trader that loaned the money doesn't want to be subject to the risk that the margin trader takes upon themself when buying apples. This is why margin trading requires equity to be staked as collateral. When the price of apples to USD drops below a certain threshold, the traders position is liquidated (or closed). The apples in the position are used to cover the initial loan, including the collateral put up by the trader. This threshold is based on the amount of apples needed to cover the initial loan plus interest and accounting for slippage. In the case above with 3x leverage, the price of apples would have to drop by less than 1/3 (amount less depends on interest, trading costs and slippage) before being liquidated, leaving the trader with nothing.
To read on, best start with margin