What Are The Features & Advantages  Of Margin Trading?

Borrowing money from the broker to buy shares is called margin trading. At present, the investor can purchase more securities than are available to invest in. Margin trading enables you to make more effective use of your capital by using an appropriate amount of financial support from the broker. The fact that margin trading ensures that you don’t miss opportunities simply because you’re short of cash is one of the main features of margin trading.

The special features of margin trading are one of the most important things a trader must know about. The most important aspect of margin trading is that, in your margin account, you incur interest on MTF to a certain extent for debit. Thus, this constitutes an efficient overdraft facility. 

In this article, we will focus on the features of margin trading, so let’s move ahead for a better understanding.

About Margin Trading

You can buy stocks that you can’t afford through margin trading. You can invest in stocks if you pay a certain amount of their real value. The payment of this margin shall be made in cash or shares as security. Investors’ use of money or security for margin trading can be regarded as a leveraged position on the market. Your broker is financing the margin trading transactions.

Features of Margin Trading 

Here are some important features of margin trading mentioned below;

1. For margin trading, a separate account is required.

Traders and investors must create separate accounts, agreeing to all the terms and conditions concerning maintaining such an account, which often includes cash or shares as collateral, if they are to benefit from margin trading facilities granted by stockbrokers. In the event of losses, the broker reserves the right to cancel the position if the margin is insufficient. This can result in losing assets kept as collateral, a basic risk of margin trading for which you should be prepared.

2. The margin trading facility may be offered only by authorised stockbrokers.

Offering margin trading is a facility that the market regulator, SEBI, very closely monitors. Brokers have access to traders’ assets, which they use as a margin, since the adoption of the 2017 Regulation. Brokers who do not know an investor or trader can use this margin for other purposes, e.g., to cover their expenses.

3. Not all stocks can be purchased at a margin. 

The fact that not all stocks displayed on the exchange may be traded over a margin also constitutes an important feature of margin trading, which you should consider. Some stocks, such as penny stocks and initial public offerings, cannot be bought using margin because of their high risk.

4. The margin-created position will be moved forward to the T+N days.

As a result, it is possible to close certain transactions carried out with the margin facility for more than one day. This provides a margin facility, which can also be useful for positions and swing traders who have opened or closed positions on different days, compared to an intraday trader. Where T indicates the day when a position was opened, and N means the number of days it should have been closed, those positions can be kept open for periods referred to as T+N.

Advantages Of Margin Trading

The advantages of margin trading are mentioned below;

1. Increased rate of return on invested capital 

If margin trading is used in markets where trades have proven successful, it can increase your rate of return by many times what you would achieve if you did not make a normal trade. The profit from the transaction can be much higher than the actual margin payments made to the broker.

2. Enhances Your Buying Power 

The purchasing power of investors is boosted by margin trading. This facility can help you obtain more purchasing power and invest more money in the markets if you intend to use margin trading on intraday or BTST transactions.

The purchasing power of investors is enhanced by margin trading. If things don’t go as planned, it can increase losses. If you’re trading a little bit, you’ve got to be very careful. If you are considering getting into margin trading, use an online stock trading app like blinkX. Open a free trading account on blinkX, one of India’s most popular websites. With blinkX, you can open a free demat account online in three easy steps of onboarding. Free online trading account. With blinkX, it’s easy to trade. You can trade with blinkX at Go.