In this article, I’m going to tell all of you about what is margin trading or margin meaning in my website 1stlearner.com. So, let’s go on the topic without wasting your time.
What is margin trading?
In the stock market, margin trading refers to the process under which individual investors buy more stocks than they can buy. Margin trading refers to intraday trading in India. And some various stockbrokers provide this service. The margin trading involves the purchase and sale of securities in the same session. Over time, various brokerage has relaxed the approach of time duration. For this process, the investor needs to estimate the speed of the stock in a particular session. Margin Trading is an easy way to make a fast buck. With the advent of electronic stock exchanges, once special area is now also accessible to small traders.
The process is quite simple. A margin account provides resources to buy stocks in excess quantity, as much as you can spend at any given time. For this purpose, brokers will lend money to buy shares and keep them in collateral form.
To do trade with margin account, you must first request a broker to open the margin account. For this, you will have to pay the broker a fix amount in cash, which calls the minimum margin. This will help in recovering some money by paying the broker, the trader should lose the bet and fail to return the money.
Once the account opened, you will have to pay an initial margin (IM). That is a fixed percentage of the total trade value pre-determined by the broker. Before starting trade, you have to remember three important steps. First of all, you need to maintain the minimum margin (MM) through the session. Because on a very volatile day, the share price could be more than one, which was anticipated.
Secondly, you need to square your position at the end of each trading session. If you have purchased the stock, you have to sell them. And if you have sold the stock, you have to buy them at the end of the session.
Third, change it after trade into a delivery order, in which case you have to be prepared to buy all the shares you bought during the session and pay the broker fees and additional charges.
Meaning of Margin
A margin refers to the amount of an investor’s equity in a brokerage account. To margin means to use the money borrowed from a broker for the security purchase. You should have a margin account to do this instead of a standard brokerage account. A margin account is a brokerage account in which the broker borrows the investor’s money. So that he can buy more securities which he can buy in his account with the balance.
Using Margin for the purchase of securities effectively utilizes cash or securities already in your account as collateral for the loan. The collateral loan comes with a periodic interest rate that should pay. The investor using borrow money, or levitation, and therefore both loss and profit will extend as a result. Margin investment can be beneficial in those cases where the investor expects to earn a high rate of return on investment, which he is paying interest on loan.
Thus, Now You all know that What is margin trading and margin meaning. Read this article also – Economic growth | Top 10 factors of economic growth.