Skip to content
logo
  • Cryptocurrency
  • Finance Tips
  • Investing
  • Make Money Online
  • Work From Home
  • Quiz
  • About Us
  • Privacy Policy
Margin Trading

Margin Trading

Posted on January 18, 2022February 2, 2022 By Pallavi Joshi No Comments on Margin Trading
Finance Tips

What is Margin Trading in Finance?

In the stock market, Margin trading is the process where individual investors buy more stocks than they can afford to. Margin trading is also an intraday trading practice and there are several stockbrokers out there who can provide this service. Margin Trading involves buying and selling of securities in one single session.

Key features of Margin Trading

● Margin trading allows investors to leverage their positions in securities that are not from the segment of derivatives.

● Only authorised brokers can offer margin trade accounts as per SEBI regulations.

● Securities that are traded on margins are pre-defined by SEBI and other respective stock exchanges.

● Investors can create positions against the margin in the form of cash or collateral through shares.

● The margin created positions can then be carried forward up to a maximum of N+T days where N is the number of days the said position can be carried over and T is the trading days.

Practices to follow

  1. Invest well: if you are planning to invest through margin trading, be cautious.
    Margin trading, if done well, can magnify gains, however, vice versa also
    holds true.
  2. Borrowing lesser than the allowed limit: you should avoid borrowing the full
    allowed limit. Give a try with a smaller amount first and see how it goes for
    you. If you are confident about the process and your position, you can
    continue margin trading
  3. Borrow for short durations: margin is like a loan, which you are liable to pay
    interest. Hence it is advisable to settle the margin at the earliest so that
    you don’t accumulate higher interest on margin trading.

Regulations by SEBI

The margin trading was only allowed with cash and providing shares as collateral was not allowed until last year. SEBI or the Securities and Exchange Board of India relaxed this condition by enabling investors to create positions under the margin trading by furnishing shares as security.

 

Eligibility criteria

In order to be eligible for margin trading, you must have a margin account with the broker in order to avail of MTF or Margin Trading Facility. A certain sum of money is needed to be paid at the time of opening the MTF account. A minimum balance is needed to be maintained at all times, and on failing to do so, your trade will get squared-off. The squaring-off position is mandatory at the end of each trade session.

Benefits of Margin Trading

Some of the benefits of margin trading are listed below:

  1. The securities in your Demat account or portfolio can be used as collateral or security.
  2. Margin trading facility improves the rate of return on the capital you have invested
  3. Margin trading is suitable for those types of investors who are seeking to encash on the price fluctuations over a short period of time but do not have cash in hand.
  4. Stock exchange and the market watchdog, SEBI monitor the margin trading facility continuously.
  5. Margin trading facility also improves the purchasing power of investors.
Tags: Equity Finance Tips Investing Stock MArket Stocks

Post navigation

❮ Previous Post: What is Technical stock analysis?
Next Post: What is a SIP and why is everyone interested in it? ❯

You may also like

Finance Tips
Review on Book: Debt-Free Degree
July 26, 2022
Finance Tips
Currency Hedging in Emerging Markets: Managing Cash Flow Exposure
April 27, 2022
Finance Tips
Key Takeaways from Rich Dad Poor Dad (Book Review)
July 7, 2022
stocks
Finance Tips
Emerging Blue Chip Stocks in India
December 8, 2021

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

You may also like:

  • What is RBI’s Digital Rupee?
  • Top Money Management Apps
  • Loan Settlement and How Does It Affect Your Credit Score?
  • How to avoid the Debt Trap?
  • Essential Tips for Money Management
  • Buy Now Pay Later vs Personal Loan vs Credit Card
  • Google Pay: Check Limit On Daily Remittance Across India
  • Tax Saving Bank FD Vs Post Office TD: Where Should You Invest To Earn High Returns?
  • Exhausted Section 80C? Here Are Other Ways To Save More Taxes
  • LIC IPO 2022
  • What is FIRE- Financial Independence/Retire Early
  • Beginner’s Guide: Decentralised Finance (DeFi)
  • How To Choose The Best Term Life Insurance Policy?
  • How To Buy, Sell and Gift Digital Gold Through Airtel Payment Bank?
  • What Elon Musk would do with Twitter
  • What Can You Do in Decentraland’s Metaverse?
  • Investing lessons from Raamdeo Agrawal
  • How to Calculate Your DeFi, NFT, and Airdrop Taxes for 2022
  • How to Become Eligible for Token Airdrops
  • Investing tips from V. Vaidyanathan
  • Cryptocurrency
  • Finance Tips
  • Investing
  • Make Money Online
  • Work From Home
  • Quiz
  • About Us
  • Privacy Policy