In the stock markets, margin trading is a process in which you can invest in stocks that you otherwise cannot afford. You need to pay a marginal fee from the actual value to buy stocks. You can pay this margin money in cash or stocks, or securities.
Published on 29 January 2023
Simply put, margin trading is considered a way of leveraging an investor’s position in the market by investing in cash or securities. If you wish to trade in margins, your stockbroker will fund the margin trading transactions for you.
Once you square off your position in the market, the market will settle the margin. Also, you can experience again when your earned profits are much higher, or else, you can experience a loss.
Now that you are aware of what is margin money, you need to have a clear understanding of the SEBI regulations related to the same. Till last year, margin money trading was allowed only with cash. Offering stocks as collateral wasn’t allowed.
However, SEBI (Securities and Exchange Board of India) recently relaxed this norm. Now, investors can furnish shares as security while trading in margin money in the stock markets.
Now, with proper knowledge about margin money meaning, you might feel like trading in the margin. However, there are a few things that you need to understand. You will first need to open a margin account with your stockbroker to avail of the MTF (Margin Trading Facility).
While opening the MTF account, you need to pay a certain amount. Also, you will need to maintain a minimum balance in your account at all times. In case you fail to do so, your trade will be squared-off. At the end of the trading sessions, the squaring-off position is mandatory.
Here are a few margin money trading advantages for an investor –
Here are some of the features of margin trading facility (MTF) –
Now that you are aware of what is margin money in trading, let’s have a look at the two different aspects of margin trading below:
Trading in margin money in the stock market can increase an investor's purchasing power. However, it can also lead to huge losses if things do not go the way you have anticipated. Hence, it would be best to be extra careful when implementing the margin trading facility.
Also Read: how to Trade in F&O?