A Beginner’s Guide to Margin Trading Fund

In this article, we will disucss

• Leveraging Market Opportunities: Tactical Approaches with Margin Funds
• What is a Margin Trading Fund?
• How Does Margin Trading Fund Work?
• How Does Margin Fund Investing Work? - An Example`
• Conclusion
• Frequently Asked Questions

Leveraging Market Opportunities: Tactical Approaches with Margin Funds

If you have ever had to miss out on a trading opportunity due to shortage of funds, then margin trading funds can be the answer to your problem. It gives you an opportunity to buy stocks that you could not afford otherwise. While it may sound like a great opportunity, it is also a risky venture. Hence, it must be used carefully. In this blog, we have covered all the basics of margin trading so that you can use it to leverage good market opportunities as a trader.

What is a Margin Trading Fund?

Margin trading is essentially a loan facility that you receive from your stock broker. The additional money allows you to buy shares over what your own capital wouldn’t. Since it is a leverage provided by your broker, it comes with a predetermined rate of interest that you must pay to your broker. Margin trading fund is also known as a leverage fund that investors can use to amplify their gains. However, if your trade goes wrong, it would also amplify your losses.

How Does Margin Trading Fund Work?

Before anything, you will first need to have a Demat account with the broker, and you need to subscribe to the feature.

• Every broker has an initial margin requirement specified in percentage. It is the minimum amount you will have to invest to be able to use the margin trading fund. 
• You must also remember that if your trade position is open and the prices are falling, your broker shall make a margin call when they feel the price of the security is going below the minimum margin.
• If you fail to meet the minimum margin requirement in time, the broker has the right to sell the securities in order to keep their fund safe.

How Does Margin Fund Investing Work? - An Example

For example, If you want to purchase a equity delivery worth rupees ₹4,00,000, but you only have ₹1,00,000 with you. So in this case you can use Margin Trading Fund and get ₹3,00,000 as a leverage and now you can buy stock worth rupees ₹4,00,000. You will be charged interest on the borrowed amount on a daily basis until you square off your position. The rate of interest for margin trading facilities usually tends to vary across brokers. To make an informed decision, you need to consider the interest you will have to pay to the broker for borrowing their funds. Hence, if you incur a loss while trading using the margin trading fund, you will also have to add the expense to your loss, thus further reducing your capital.

Conclusion

Margin trading fund is a technical aspect of stock market trading. Even though it allows you to amplify your returns, you can also suffer great losses in case a trade goes wrong. If you are looking for a robust trading app that meets all your trading requirements along with giving you insights into your trading patterns, you can check out the Samco New-gen trading app today! With the app’s MTF facility, you can meet your margin needs easily and on time. It offers you a leverage of up to 4x and has over 500+ securities available for trading on margin on both BSE and NSE.

Frequently Asked Questions

Q1. Will the brokerage firm inform me before squaring off any of my trades?

Ans. If the brokerage firm believes that you are about to fall short of the minimum margin, they will call you or get in touch via email, asking you to add more money. However, if you fail to meet the margin on time, the brokerage firm is under no obligation to inform you before squaring off your trade.

Q2. Can I buy any stock using margin?

Ans. No, there are only certain stocks specified by both NSE and BSE that you can buy on margin through their exchange.