Intraday Trading Margin: What is Day Trading Margin? | Espresso

What is Day Trading Margin?

Day trading, also known as intraday trading, is the process of buying and selling securities in the stock market on the same day through a margin account. The objective of day trading online is to lock in profits from the movement of stock prices.


Published on 01 April 2023

However, investors require a hefty investment sum for volume-based intraday trading. This is made possible through the intraday trading margin concept. In the stock market, intraday trading margin refers to the process of buying more stocks than an investor can afford to.

This margin in day trading comes from the funds borrowed from the broker to trade in large sizes. Intraday trading can result in substantial gains or losses in a short period because of the high dependence on fluctuations in stock prices on a particular day.
Also Read: Introduction to Intraday Trading

If you are interested in day trading online, understand the concept of margin in day trading and how it works:

What is an Intraday Trading Margin? 

Intraday trading margin is a feature in day trading that facilitates trading for investors who do not have the requisite cash. Buying securities through the margin account enhances your trading power by giving you funds to buy a greater amount of shares than you have cash for. Margin in day trading also permits short-selling. 

The shortfall in day trading funds is fulfilled by the brokerage firm, which charges interest for this facility. 

How does the Concept of Margin in Day Trading Works?

When you engage in online intraday trading, your brokerage firm gives you an option to utilise its resources (funds) to buy a larger quantity of a stock (s) than you can afford at any particular time. The brokerage firm lends you the money and keeps the shares as collateral. This is known as margin in day trading

The idea behind intraday trading margin is to amplify your purchasing power to hold more cash positions than you can otherwise afford. By using the margin facility in intraday trading, you increase your potential returns and losses. 

Moreover, the broker requires you to adhere to margin calls and maintenance margin rules. If the trades go sour, borrowed funds plus margin calls and maintenance rules can further amplify the losses. But if used wisely and diligently, the margin in day trading can prove significantly advantageous for you. 

intraday trading margin can be used for all securities, including equity, bonds, futures, commodity, CFDs (Contract for differences), etc. If you want to use the margin option in online intraday trading, request your broker to open a margin account. You would need to pay an upfront sum to the broker in cash, also known as minimum margin. This amount can be used by the broker to square off a trade if you lose the trading bet and fail to return the sum borrowed.
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What Is Day Trading Margin Calls?

In India, day trading margin calls and the maintenance amount for day trading online have become necessary for intraday margin trading. If you’re an intraday margin trader, you are obliged to keep a particular amount in your account to maintain the margin in day trading.

Any failure to maintain the margin in day trading within the same day will generate a margin call. This margin call will require you to add money into your account or close the positions to bring your day trading account back to the intraday margin maintenance value.

Now that you have a basic understanding of what is margin in intraday trading let’s dive deeper to get more insights on margin calls.

A margin call can surge costs when your intraday trade underperforms for some reason. Here is an example for a better understanding of margin in day trading. Consider a trader who has ₹30,000 more than the requisite margin maintenance amount.

It will provide the trader with a purchasing power worth ₹1,50,000 in day trading, provided they trade on a 5x margin (5 x ₹30,000). Now, let’s assume that the same trader buys XYZ Corp stocks worth ₹1,50,000 at 9:45 am.

On the same day, 15 minutes later, when the clock turns 10, the trader buys PQR’s stock worth ₹1,20,000. In this case, the trader surpassed their purchasing power limit. No matter if the trader is prepared to sell both these stock holdings during the afternoon trade, they will get a day trading margin call on the following trading day.

The trader could’ve easily avoided receiving the intraday margin call if they had decided to sell the XYZ Corp stock before buying the stocks of PQR Corp.

Advantages of Intraday Margin

Now that you know what is intraday margin let’s check some of its benefits when day trading online:

  • If your capital funding is insufficient and you discover a lucrative trading opportunity, you can choose to capitalize on the trading opportunity by using the margin facility.
  • You can opt for the utilization of your demat account’s shareholdings as collateral for the margin, provided your stockbroker agrees to it.
  • Using the intraday margin facility will help you enhance and boost ROI.
  • Thanks to the intraday margin, your capital’s purchasing power will increase as the margin enables you to buy extra shares using the same capital.

Disadvantages of Intraday Margin

Everything has some downsides to it, and so does the use of margin when day trading online. Here are a few disadvantages of intraday margin you should know:

  • In addition to higher profits, the intraday margin is also responsible for the magnification of your losses. If things go wrong in a single trade, you can end up losing a huge amount of your capital.
  • No matter what, you’ll always have to meet the minimum balance criteria. Failing to meet this requirement will result in your broker exiting your trade. This will snatch away your opportunity to make a good trade.
  • One of the most common reasons for significant losses in the share market is over-leveraging. Several beginner traders lose all their capital by day trading online with large margins.

Given that, you should always adhere to the best day trading practices to make the most out of intraday margin trading. Use this facility smartly and only when you’re confident.

Margin Requirements by SEBI 

As per SEBI (Securities Exchange Board of India), you have to keep a 100% margin (earlier 75% margin was required) in your bank account to use the intraday trading margin. This 100% margin is ascertained as per the market volatility - VaR (value at risk) - defined separately by exchanges for each stock. VaR is higher for penny stocks. These intraday trading margins should be fulfilled at the commencement of each new intraday deal. 

For instance, if you want to buy shares of Company X worth ₹1 lakh, and the margin set by the broker is 20%, you need to maintain a balance of ₹20,000 with your stockbroker. 

If you fail to maintain the intraday trading margin, a margin call is issued, instructing you to either close your day trading positions or add money to your account to fulfil the margins in day trading

Overall, online intraday trading margins aim to provide you with the benefit of leverage trading. However, intraday trading margins have strict rules, which demand absolute adherence. If you want to use the margin in day trading, you can ask your broker, and the facility is available in no time. 


Chandresh Khona
Team Espresso

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