Is Margin buying advisable?

Is Margin buying advisable?

My Broker is ready to give me 20+ times exposer, As a beginer feel very excited to use that and make lot of money using that. Any advises please?

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Good one, Anil!

Margin trading is nothing but taking a trade with leverage provided by the broker. This means you can take multiple positions/ lots with lesser trading capital.

On the periphery, it looks like the broker is the one who is making more money because, [by facilitating higher leverage] he is encouraging you to trade more and thereby generating more brokerage.

But if you take a closer look, eventually higher leveraging kills the trader and broker, both, in the long run. As a trader, one has to maintain certain margin money with the broker. Similarly, broker has to maintain certain margin money with Clearing Members.

By taking higher leverage, trader is risking his entire trading capital as he is eventually ‘chewing more than he can bite’ as he is taking more trades than he actually should. Similar is the scenario with the broker. A sudden movement in the prices will result in both of them going bankrupt as there is no or very less, so called ‘cushion money’.

Especially w.r.t. commodity trading/ MCX, many brokers have gone bust in the past because of the same reason. So, to protect the interest of ALL the parties involved, SEBI/ FMC have set up regulations on leveraging such as:

  1. Putting a limit/full stop on overnight margins provided by brokers.

  2. Brokers are supposed to maintain separate bank accounts for Commodity & Cash segments.

My suggestion would be to avoid taking leveraged trades as much as possible. Remember, priority should be on preserving ‘trading capital’ so that you can eventually be a successful trader, taking baby steps with each trade!.

.

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simple margin is double sided sword …some time it will kill others…and some time it will kill u also…proper money management is important

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