1) Margin trading refers to buying stocks using cash borrowed from the broker using the securities purchases as collateral.
2) For instance, for a position of Rs 100, a broker may offer Rs 50 as margin funding at a specific rate of interest. The remaining Rs 50 will have to come from the investor.
3) If the stock moves up to, say, Rs 102 in 30 days, you repay Rs 50 with interest and pocket the rest. If split equally, it would mean a 24% annual return for you and your broker on an investment of Rs 50 each.
4) At an interest rate lower than the return percentage, the gains are higher for the investor. For an appreciation lower than the rate of interest, the gains are higher for the broker.
5) Margin trading can be risky. If the stock falls to Rs 98, you still have to pay the broker his Rs 50 plus interest. You lose Rs 2 along with the interest paid to the broker.
(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
2) For instance, for a position of Rs 100, a broker may offer Rs 50 as margin funding at a specific rate of interest. The remaining Rs 50 will have to come from the investor.
3) If the stock moves up to, say, Rs 102 in 30 days, you repay Rs 50 with interest and pocket the rest. If split equally, it would mean a 24% annual return for you and your broker on an investment of Rs 50 each.
4) At an interest rate lower than the return percentage, the gains are higher for the investor. For an appreciation lower than the rate of interest, the gains are higher for the broker.
5) Margin trading can be risky. If the stock falls to Rs 98, you still have to pay the broker his Rs 50 plus interest. You lose Rs 2 along with the interest paid to the broker.
(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
No comments:
Post a Comment