MTF Explained – Boost Your Buying Power
introduction
Margin trading involves borrowing funds to trade larger positions than one's capital allows, amplifying potential gains and losses. It's common in stocks, forex, and crypto markets. What is margin trading facility(definition)
Let's understand it in detail........example of margin trading
Full explanation this point
2) How can we do Margin Trading?
3) Margin Trading the right thing to do?
4) What is Leverage or Margin Trading?
margin trading is a facility that every broker offers to its customers. With its help, we can buy more shares in less money.
For example
if a broker gives a margin of 10 times on a share, then we can buy 10 shares at the price of one share from that broker. So, friends if a broker is offering 10 times margin or leverage on SBI stock.
And if the price of one share of SBI is 100 rupees. We can buy 10 shares of SBI instead of one share for 100 rupees. This means that we can buy SBI shares of 1000 rupees for 100 rupees. the thing to note is that most of the brokers offer margin or leverage only for intraday trading. And there are very few brokers who give us leverage for position or swing trading. And no broker gives leverage for long term investing.
As well as friends
The margin varies on each stock. Generally, good and large companies have higher margins on their stock. Whereas the margin on the shares of small companies is less. And to give or not to give margin on any stock or how many times of margin to give, every broker decides according to his own. you must confirm all the margins with your broker before doing margin trading.
Why do brokers do this?
Why do brokers allow us to buy shares of 1000 rupees for 100 rupees? The simple answer is brokerage. Brokers take brokerage on every buy and sell order. And the brokerage is based on the total value of the stock bought or sold. If a broker has a commission of 1% and we buy a total of 100 rupees of stocks. So that broker will charge us 1% of 100 rupees
Example
1 rupee brokerage. But when we buy shares of 1000 rupees for 100 rupees with a margin of 10 times. Now the brokerage will be 1% of the total buy value i.e. 1000 Rs, which means 10 rupees. This is the reason why brokers provide margin or leverage. So that we buy and sell stocks of higher value, and the brokers can take more brokerage from us.
How can we do margin trading?
for margin trading, first of all, we need a trading account. If you do not know about trading account, we have made a video on both trading and demat account. You must watch them. After creating a trading account, we will have to add money to that account. And then we'll have to check the margin of any stock or derivatives in which we want to do margin trading. And then we can do intraday trading according to the margin of that stock. Keep in mind guys, before you do margin trading, check the margin well from your brokers.
Is Margin Trading the right thing to do?
trading with margin is like a double-edged sword. We can earn a big profit from margin trading by putting very little money in a very short period of time. But if our trade goes wrong then we can also suffer big loss. Let us understand this with an
example.
Suppose we have 1 lakh rupees. And we want to do intraday margin trading. We chose a stock XY whose share price is 1000 rupees. And on this stock, we are getting 10 times margin from our broker. So, friends, if we had not received the margin, we would have been able to buy only 100 shares of XY Company for 1 lakh. But because we are getting 10 times margin on the stock of XY company. So now we buy 1000 shares of XY company from the same 1 lakh rupees in intraday. what will happen if the share price of XY increases by 10% in a few hours from 1000 to 1100 rupees? because we have bought shares worth 10 lakhs rupees. Therefore, the value of our shares will also increase by 10% from 10 lakhs to 11 lakhs rupees' and if we sell all our shares at the price of 1100, then we will get a profit of 1 lakh rupees. Yes, by doing margin trading with Rs 1 lakh, we can double our money by earning 100% profit on our investment in a few hours. But if the share price of XY company decreases by 10% instead of increasing by 10%, then we will lose 1 lakh rupees instead of making a profit of 1 lakh rupees. And we will suffer a 100% loss on our investment instead of making 100% profit.
So, margin trading in itself is neither good nor bad.
It depends on us how we trade using margin. if we carefully and thoughtfully use margin without greed, then margin trading can be very good for us. But if we will trade with margin without doing technical analysis and being influenced by greed then margin trading can be harmful to us. how margin trading works
conclusion
So, guys, this was our today's blog on margin trading. In this, we learned what is leverage or margin trading? Margin trading is requiredAnd is it right to do margin trading?
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