Margin Trading Meaning and Steps for Buying Stock on Margin
Margin Trading Definition – A process whereby investors buy the stocks more than the amount of money they have with themselves.
Trading stock on margin enable the investors to buy the stocks more than the money they have. It is just like a loan that the investor took from the broker. In India, it is also known from the name of intraday trading. There are dozens of brokers that provide this service. It is always about guessing right whether the stock will go up or down. If you guess it right then you take huge amount of money to your home. However, if your analysis is not correct, you can even loss lots of money.
Procedure for Buying Stock on Margin
Buying stock on margin is quite a simple process. All you required to have a margin account. All you need to do is register yourself with a broker. Then broker will require your signature for opening a margin account in your name. Investor also require to pay off a sum of money which is known as minimum margin.
When the account is successfully opened, you as investor is required to pay a minimum margin for that particular day. Minimum margin in margin trading refers to the certain percentage of the total value of the share traded. Well, you are not require to give a deep thought over it as it is decided by your broker.
Therefore, while trading on margin, it is important that investor keep in mind three important things. These are given below –
- Maintain a minimum margin in every session.
- Square off your position at the end of every session. That is if you have sell the shares, you have to buy the stock. Similarly, if you have buy the stock, you have to sell the stock at the end of the session.
- Do not forget to convert it into delivery order after trading so that you have the cash ready for paying the fees of the broker and other charges.
Related Financial Terms of Margin Trading
- Accrued Income Definition – Example | Balance Sheet Treatment
- Adjusted Trial Balance Definition | Meaning | Example | Format