Margin trading is a facility provided by stockbrokers that allows traders to buy more stocks than they can afford by borrowing funds from the broker.
This leverage helps traders amplify their profits, but it also increases their risk of losses.
Margin trading is regulated by the Securities and Exchange Board of India (SEBI) and the stock exchanges (NSE & BSE) to protect investors and ensure market stability.
How Does Margin Trading Work in India
1.Opening a Margin Trading Account (MTA)
2.Deposit of Margin Money
3.Buying Stocks on Margin
4.Maintaining Margin Requirements
5.Margin Call and Liquidation:
a. If the investor fails to deposit additional funds, the broker can sell the securities to recover the loan.
b. This is known as forced liquidation and helps prevent further losses.
Types of Margin Trading in India
1. Margin Trading Facility (MTF)
2. Intraday Margin Trading
3. Futures and Options (F&O) Margin Trading
Related Articles
What is a trading account, and how is it different from a Demat account?
Definition Demat Account: A demat account is one where securities are kept in electronic format. Consider this the equivalent of a bank account. While we hold money in the bank account, securities are held in the demat account. This is an account one ...
What is an online trading platform?
An online trading platform is a software application that allows investors and traders to buy and sell financial instruments such as stocks, bonds, commodities, currencies, derivatives (like Futures and Options), and other assets through the ...
What is intraday trading?
Intraday trading, also known as day trading, refers to the practice of buying and selling stocks within the same trading day, meaning that all positions are squared off before the market closes. The primary objective of intraday trading is to ...
What are the key benefits and risks associated with F&O trading?
Benefits: Leverage - F&O trading allows traders to take larger positions with a smaller capital investment, enhancing profit potential. Hedging - investors use F&O to protect their portfolios from adverse market movements. For example, buying Put ...
What is positional trading?
Positional trading is a type of trading where you buy and hold stocks (or any financial asset) for a longer period of time—usually weeks, months, or even years—with the aim of making a profit from big price movements. Unlike intraday trading, where ...