I’m new to trading and I wan’t to know how Margin works while trading in equity segment. Suppose I’ve cash balance of 5000 in my trading a/c and I want to buy a particular share of Rs. 100 and if that share’s Margin is 10 times, will I be able to buy 500 shares with that 5000 balance in my a/c ? Kindly explain it and will margin automatically execute while placing order ??
See basically brokers provide leverage on your account balance to give you more buying power on day trading once you take delivery of your shares you have to buy it on cash. Now if share margin is 10 times that means you have leverage of 10%. So you can buy 100 rs share at 10 rs. hence with 5000 rs in your account you can buy 500 shares. But if you take delivery you can buy only 50 shares. And yes margins automatically gets executed.
Cheers
Akash
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Hi Ravi,
Margin is a financing option (mainly on intraday basis), provided by your broker to enhance your cash level. They do this so that you can transact in a much larger scale than what you actually can.
This is like a double edge sword, works beautifully well when you are right but the same thing can be a killer when the trade goes wrong. So be sure of what you are doing while using margins.
I've tried to make it easier to understand by plugging in few numbers, let me know if you need any further explanation, I'll be happy to do so.
Hope someone more knowledgeable would give you clarity on the logistic bit.
Margins vary from stock to stock based on its volatility. Different brokers have different naming convention for margin products I suppose.
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Hi Karthik,
Could you please explain, what is the advantage of the broker by giving such facility for us ?