In this article, we will discuss
- What Is Leverage in the Stock Market?
- How Can You Use Leverage in the Stock Market?
- Perks of Using Leverage in the Stock Market
- Risks Associated with Leverage Trading
- What Is Samco’s CashPlus?
- Attractive Features of CashPlus MTF to Start Leverage Trading
- Final Words
- FAQs
While trading in the stock market, you must have heard about the terms ‘leverage’ and ‘margin’ used to describe certain trading strategies. Leverage or margin trading is an essential term that both new and seasoned traders must know about. With it, traders can add more shares to their portfolio by depositing only a small portion of their total trade value as collateral.
In the following sections, we discuss the workings of trading with leverage and the various strategies you can use. Keep reading for a comprehensive idea of the benefits of leverage trading with Samco Securities' CashPlus.
What Is Leverage in the Stock Market?
In simple terms, margin trading helps you increase your returns from trade through the use of borrowed funds or leverage. To go ahead with this, your broker lends you funds for trading securities several times your initial capacity. To mitigate risks, they require you to put a small portion of the leveraged funds as a margin. The margin can be in the form of shares or cash.
To trade with leverage, traders must have a margin trading account or Margin Trading Facility with brokers. The latter will disburse margin money in this account and levy interest rates on the same. This interest will keep accruing till you clear the debt.
How Can You Use Leverage in the Stock Market?
Here are the various ways you can use leverage for capital growth in the stock market.
Leveraged ETFs
Unlike regular ETFs, leveraged exchange-traded funds use futures to amplify returns from an index. They require you to pledge collateral to alter their financial performance as per market shifts.
Trading Derivatives
You can use the power of leverage for futures and options trading. This lets you increase your returns from your trades exponentially. Very often, 100 shares of an underlying security is a part of futures or options contracts. This means, with an F&O contract, you can control 100 shares at a price lower than the purchase price of 100 shares. Using leverage, you can further impact the effects of price changes in the underlying stock.
Margin Trading
This is the most popular use of leverage in the world of the stock market to enhance returns more than your spending limit. With margin trading, you can borrow money from a broker to buy stocks or trade with stock futures and options.
To increase capital gain using margin trading, you must pledge a certain amount of cash as leverage. CashPlus is a secured MTF platform to help you trade with leverage and focus on higher returns along with several other benefits.
Perks of Using Leverage in the Stock Market
Take a look at the benefits that you can enjoy by trading with leverage in the stock market.
- Traders can increase their profits by participating in profitable trades with leverage. Because they only need to offer a small amount of cash as security, they can control much larger positions with their funds. This means that traders can make sufficient profits even if the price of the underlying asset changes a little.
- With leverage, the amount of money which you invest in different financial markets increases. Thus, you can trade with more shares and earn more in the equity delivery segment through different trade positions in your portfolio.
- The stock market is subject to unpredictable market fluctuations and volatility. If you trade wisely, these market fluctuations can bring significant profits. By increasing the trading volumes, you only need small positive movements to meet your goals. In this way, leveraged trading can help you get returns even when the market is down.
- Leverage or margin money is like a loan, but from your broker to help you trade with more shares than your limit.
- Therefore, traders can opt for leverage to buy expensive shares. They can take advantage of falling prices to buy shares of reputable companies in bulk. Margin trading also helps expose traders to several trading options and opportunities to diversify and hedge their portfolios.
Risks Associated with Leverage Trading
Besides the above advantages, here are some of the risks of leverage trading that you must learn about:
- Leverage trading is a high-risk, high-reward strategy. If the stock price moves against your position, you can lose more than your initial investment.
- There are higher risks of losses for certain businesses. Sectors like automobile construction, oil production, and construction are prone to more volatile markets and losses. Therefore, low-risk horizon traders must avoid practising leverage trading in these sectors owing to this market volatility.
- If a trader does not have a comprehensive strategy to manage the risks of leverage trading, he/she can suffer massive losses.
What Is Samco’s CashPlus?
CashPlus is one such new-gen MTF that Samco Securities offers through its trading app. It allows you to get up to 4X leverage for purchasing shares on NSE and BSE. Samco will provide up to ₹3 lakh for a margin amount of ₹1 lakh. This facility is available for more than 1,000 stocks.
Keep reading for detailed knowledge on trading with leverage with this MTF from Samco Securities.
Attractive Features of CashPlus MTF to Start Leverage Trading
Here are a few things that you must know about leverage trading with Cashplus before starting one.
Nominal Interest
CashPlus MTF allows you to borrow funds for capital growth with leverage trading at low interest rates. The app levies and calculates interest on the borrowed amount each day till the debt is cleared.
No MTF Charges
Samco does not charge any additional Margin Trading Facility charges from traders. Besides interest on borrowed amounts and a nominal fee of ₹1, you do not need to pay any extra amount from this app.
Zero Paperwork and Quick Activation
Accessing CashPlus trading with Samco is very easy for every new-generation trader in today's era of digital India. To register for margin trading on this app, you do not need to go through a thorough documentation process. You just need to log in to your trading platform and follow the procedure to activate this service. Once subscribed, your MTF will be activated within 24 hours.
Extensive Holding Period
Unlike many other stockbrokers, Samco’s MTF does not impose a restricted holding period on its stocks. Consequently, your holdings can stay in this account for as long as you want provided you are paying the required interest. You must also follow up every margin call to keep your holdings safe in this account.
This allows long-term traders to hold their shares in this facility and let their capital grow with margin trading.
Helps in Large Stock Selection
CashPlus MTS by Samco Securities allows you to hold more than 1,000 stocks across two prominent exchanges in India. These are the Bombay Stock Exchange and the National Stock Exchange.
Strategies to Excel in Margin Trading with CashPlus MTF
Here are a few tips for how to use the margin trade facility by Samco to make the most of leverage trading for capital gains from your portfolio.
Margin Shortfalls
Consider you are conducting a leverage trade and the value of your purchased shares falls. In such a scenario, you might need to deposit additional margin money to cover this shortage.
While trading with CashPlus, if you face an instance of margin shortage, the Samco application will notify you via SMS and email. Following this, you must make an additional margin deposit. Failure to do so might lead the trading platform to square off your existing holdings.
Converting Positions to Cash and Carry
CashPlus allows you to easily convert your margin positions to Cash and Carry. Before going ahead with this, you must ensure that you have funds equivalent to a trade value in your trading account. After this, you can quickly visit the Position Conversion window to convert an NRML trade to a CNC trade.
Must Conduct Equity Deliveries Only
Samco’s MTF facility allows 4X leveraged trading facilities to interested traders. However, you can use this facility only for equity deliveries. You cannot use this facility for commodities, futures, options or intraday trading.
Final Words
To conclude, leverage trading allows you to expand your portfolio diversification beyond your expense limit. With this, you can focus on capital growth better while hedging your portfolio against market fluctuations.
If you are a new trader, consider seeking assistance from financial experts if you are interested in marginal trading or leverage trading. Furthermore, you can visit the CashPlus section on our website for further details and register yourself for a secured and seamless leverage trading experience.
Frequently Asked Questions
1. What is my maximum leverage in the stock market?
Ans. Based on a trader's requirements and portfolio valuation, brokers decide the former's maximum leverage for margin trading.
2. What is CashPlus MTF?
Ans. Cashplus is a Margin Trading Facility that Samco Securities offers to conduct leverage trading for equity delivery from both NSE and BSE. Samco Securities is India’s only discount broker to offer this trading facility. Through this platform, you can access leverage up to 4 times based on shares purchased in the equities segment.
3. What charges does Samco’s MTF levy on traders for leverage trading?
Ans. A nominal charge of 0.05% per day will be applied to the outstanding borrowed capital for each day the amount remains unpaid. This fee is calculated daily, ensuring you only pay for the exact duration of your borrowed capital, providing flexibility while you maintain your positions.
Disclaimer: INVESTMENT IN SECURITIES MARKET ARE SUBJECT TO MARKET RISKS, READ ALL THE RELATED DOCUMENTS CAREFULLY BEFORE INVESTING. The asset classes and securities quoted in the film are exemplary and are not recommendatory. SAMCO Securities Limited (Formerly known as Samruddhi Stock Brokers Limited): BSE: 935 | NSE: 12135 | MSEI- 31600 | SEBI Reg. No.: INZ000002535 | AMFI Reg. No. 120121 | Depository Participant: CDSL: IN-DP-CDSL-443-2008 CIN No.: U67120MH2004PLC146183 | SAMCO Commodities Limited (Formerly known as Samruddhi Tradecom India Limited) | MCX- 55190 | SEBI Reg. No.: INZ000013932 Registered Address: Samco Securities Limited, 1004 - A, 10th Floor, Naman Midtown - A Wing, Senapati Bapat Marg, Prabhadevi, Mumbai - 400 013, Maharashtra, India. For any complaints Email - grievances@samco.in Research Analysts -SEBI Reg.No.-INHO0O0005847
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