5 amazing stock market buying tips on margin trading
What is margin trading?
It is the process wherein individual investors buy shares more than they could afford to. Under margin trading one buy and sell shares with borrowed funds and or securities. Basically, it is a leveraging mechanism which enables investors to take exposure in the market over and above what is possible with their own resources. Market regulator SEBI prescribed the conditions and procedures for margin trading facility from time to time.
Understand the rules
Before you start trading on margin, ensure that you understand the rules of the game. Often, broking houses would offer an exposure level of three hundred percentage on day trading and eighty to ninety percent on delivery based trading. Of course, this limit varies from broking firm to firm. Always make sure that you have read the broking firms’ guidelines carefully before making the first trade on margin. Just like every loan, there is an interest rate for what is borrowed. By understanding the interest rate mechanism, there is a higher probability for investment success.
Avoid margin calls and use stop loss
If you are planning deal in margin trading, avoid margin call on your account. Margin call mandates the investor either to deposit more cash into their account to offset the reduction in the value of their portfolio or sell a position. Under margin trading, when the overall portfolio value drops a certain percentage the margin call will be invoked by the broking house. So, understand the threshold level of trigger for margin call as margin calls are not good. One way to avoid margin call in your account is the effective use of stop loss order. Stop loss orders could not only prevent margin call but also saves your taking heavy losses.
Be cautious of any upcoming event
When you have a portfolio held on margined funds, extra caution should be exercised if there is an upcoming event such as earnings reports, annual general meeting, etc. Often investors may be buying additional stock on margin anticipating positive news, but like any investment you should be prepared in case the news does not go your way.
Keep backup fund in liquid cash
When the worst scenario happens, then do not lose it all. One should keep cash on the side lines to serve as backup funding when some of these worst situations could be avoided. Portfolio cash should be used to recover from a margin call or purchase another position to hedge the risk.
Avoid speculation and stick to your plan
Speculating with either your own money or borrowed money is not at all a smart thing to do. Utilize margin trading in conjunction with a well-defined profit and loss ratio to stay keep investing in a disciplined manner. Similarly, when investing one should stick to their own set strategy and don’t heed to the calls offered by any third parties barring your own investment advisor but final call on buy or sell should be taken by you. Follow the above tips, to make money through margin trading
It is the process wherein individual investors buy shares more than they could afford to. Under margin trading one buy and sell shares with borrowed funds and or securities. Basically, it is a leveraging mechanism which enables investors to take exposure in the market over and above what is possible with their own resources. Market regulator SEBI prescribed the conditions and procedures for margin trading facility from time to time.
Understand the rules
Before you start trading on margin, ensure that you understand the rules of the game. Often, broking houses would offer an exposure level of three hundred percentage on day trading and eighty to ninety percent on delivery based trading. Of course, this limit varies from broking firm to firm. Always make sure that you have read the broking firms’ guidelines carefully before making the first trade on margin. Just like every loan, there is an interest rate for what is borrowed. By understanding the interest rate mechanism, there is a higher probability for investment success.
Avoid margin calls and use stop loss
If you are planning deal in margin trading, avoid margin call on your account. Margin call mandates the investor either to deposit more cash into their account to offset the reduction in the value of their portfolio or sell a position. Under margin trading, when the overall portfolio value drops a certain percentage the margin call will be invoked by the broking house. So, understand the threshold level of trigger for margin call as margin calls are not good. One way to avoid margin call in your account is the effective use of stop loss order. Stop loss orders could not only prevent margin call but also saves your taking heavy losses.
Be cautious of any upcoming event
When you have a portfolio held on margined funds, extra caution should be exercised if there is an upcoming event such as earnings reports, annual general meeting, etc. Often investors may be buying additional stock on margin anticipating positive news, but like any investment you should be prepared in case the news does not go your way.
Keep backup fund in liquid cash
When the worst scenario happens, then do not lose it all. One should keep cash on the side lines to serve as backup funding when some of these worst situations could be avoided. Portfolio cash should be used to recover from a margin call or purchase another position to hedge the risk.
Avoid speculation and stick to your plan
Speculating with either your own money or borrowed money is not at all a smart thing to do. Utilize margin trading in conjunction with a well-defined profit and loss ratio to stay keep investing in a disciplined manner. Similarly, when investing one should stick to their own set strategy and don’t heed to the calls offered by any third parties barring your own investment advisor but final call on buy or sell should be taken by you. Follow the above tips, to make money through margin trading
No comments