Margin Amount - It is Risky
If you donít want risk then avoid margin amount
What is margin trading?
Suppose if you have Rs 25000 in your trading account and if your broker provides 4 times margin then you can do day trading till Rs one lakh.
Note - Margin trading also depends on share category on which trading is done.
For example - ďAĒ category shares get full margin while ďBĒ category shares get less margin and this will go on decreasing as you move down.
Advantages of margin amount
Major advantage of margin amount is if you have less money then also you can buy more shares.
Some experienced traders make use of margin amount to do multiple trades taking very small profits.
Disadvantage of margin amount
Time restrictions - If you use margin amount then you have to square off your trades before 3:30 pm whether your trade is in profit or loss it doesnít matter.
We have also the information that even some trading terminals square off your trades automatically at 3:00 pm if you use the margin amount.
So if you use the margin amount then you have the time restriction irrespective of whether your trade is in profit or loss you have to square off your trade because the margin amount is not your money its brokers money which is given to you only for a single day for trading.
If you donít want to take high risk in day trading then you can avoid using margin amount and trade only using available amount in your trading account.
Generally it is risky (if you are new and not experienced) to do over trading by using margin amount or even requesting your broker to add more margins for a day.
If you forget to square off your trade then you have to pay heavy plenty or some brokers charge interest rates on the margin amount.
So the bottom line is if you use the margin amount for day trading then you have to square off your trades irrespective whether you are making profit or loss.
How to overcome this (time restriction) biggest disadvantage?
Answer - Avoid margin amount.
Suppose if you have Rs 25,000 in your trading account then trade only of rupees 25,000.
In other words buy and sell shares of rupees that is available with you and which is your money and not broker money so now there is no compulsion that you have to square off your trades before 3:30 pm.
If your trade is in profit then you can book your profit and if your trade is in loss then if you want you can take delivery of those shares and sell when the price goes up.
So if you avoid margin amount then you can avoid the major losses.
So there is no harm if you donít use margin amount.
It is not compulsory to use margin amount it is just an additional amount given to you for day trading.
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