InvestorQ : What is margin trading??
preetam lenka made post

What is margin trading??

Answer
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4 months ago


In stock market, process, whereby investors buy more stocks than they can afford to, is called 'Margin trading'. It is also referred to as 'Intraday trading' in India. Margin trading involves buying and selling of securities in one single session.

This process is seen as an easy way of making a fast buck. In this process, the broker lends the money to buy shares and keep them as collateral. In order to trade with a margin account, investor must place a request with broker to open a margin account paying a certain amount of money which is called the minimum margin.

Take any stock with a market price of Rs 50. Investor has to pay only Rs 25 in cash while the remaining 25 Rs will be lent to him/her by the broker (Assuming the initial margin requirement with your broker is 50%). Thus, to understand clearly read the following cases;

  • In margin trading - Investor get 100% chance to earn because he/she paid only Rs 25.
  • In the case of normal trading – Investor earns 50% return because he/she paid Rs 50.