What is E-Margin Trading?
E-margin trading is a stock market feature in which you can buy more value of stocks with less capital, It is also called margin trading, and multiplying the stocks with less capital will multiply the profit but also multiply the loss, or maybe you can lose your complete capital.
Understand the margin trading.
In margin trading, stock brokers allow their investors to borrow money to buy the stock with a certain percentage of margin. You can use margin trading in every stock; SEBI controls this and allows margin trading in selected stocks. Every broker and every share has different margins. For example, in share A, you have to put 20% of your own capital, but in stock B, you have to invest 25% of your capital.
In simple words, you are taking a loan from your broker to buy stocks with interest, and you have to make that much profit to adjust the interest; otherwise, margin trading burns your capital.
Let’s understand this by an example.
Investor Ravi uses SBI Securities for Stock trading and investment. SBI offers Ravi to buy Rs.4000 of DCB bank stock with only Rs.1000 capital and 10% internet per annum. If DCB bank returns more than 10% within the year, then Ravi makes a profit; otherwise, it’s a loss.
Important Things to Know About E-Margin?
- You have to learn about the charges of margin trading.
- Margin trading is only for expert traders you can accurately predict the short-term move of stocks.
- Do not try to hold the margin trading for the long term, in the longer term the chances of losing the capital are very high, its only for weeks or a month.
- You have to pledge the share to brokers, in any loss-making scenario brokers will sell the stock without taking your consent to make their amount safe.
- When the share price of the margin declines you have to refill the shortfall amount otherwise after a certain point broker will sell a part of the stock to maintain the margins.
Advantage of E-Margin Trading
In margin trading, investors can make more profit with less capital in the short term and return the money with minimum interest rates.
You can use your long-term invested stocks as collateral to invest in e-margin trading.
Disadvantages of E-Margin Trading
E-margin trading is very risky trading, it’s only for those investors who can analyze and predict the accurate upward move of stocks and make high profits.
In e-margin trading, most investments make a loss and in most chances, you can lose your capital.
In e-margin trading you need to maintain a backup fund to refill the shortfall of margin when stock prices decline otherwise, the wise broker will liquidate the stocks.
In e-margin trading, the broker will sell the stocks without your consent when it makes a loss near your invested capital.
Conclusion
E-margin trading is a good feature to make a profit with less capital in a shorter but by multiplying the profits the margin also multiplies the loss, so margin trading is only for expert traders you can easily analysis understand the market and predict the upward move of the stocks.