You need to be aware before entering into the type of investment you are invading into or the investment strategy you are willing to poke into. One of the important things to understand in investment is about margins. Buying stocks on margin is like a golden sparrow in the way of money-making. One needs to check the margin amount that is required to fund the account in which he wants to trade in a specific segment. One needs to see that every segment has a different margin amount required where the broker cannot compromise. As per the margin money, only the credit is given to the concerned client to start trading.
What do you mean by Margin?
The basic definition that you should pull in your head is margin. Trading on margin implies that you would be investing with borrowed money. Calculative, a brokerage house borrows money at the lowest rates. The aftermath such follows that. The broker lends it to you at slightly higher rates. No matter what follows in your trading, all the assets attached in your account will be your guarantee.
A margin account is generally a brokerage account. This brokerage account allows the customer to purchase financial products and stocks. As the investor or the customer invest with borrowed money, he is likely to use the leverage that will enhance profits and losses for the customer. Lowest margin in India is always related to the stock market gain and loss.
How does a margin account work?
- When an investor buys securities with margin funds, the securities tend to earn a better total return while purchasing assets from margin funds and not with cash. The advantage of using margin funds is this.
- When the equity of margin account drops, the brokerage firm makes a margin call to the investor. In this condition, the investor has to deposit more cash or sell stock to equalize the proportionate loss between the maintenance margin and the security’s price.
- A margin account cannot be used for buying stocks on margin, which is referred to be an individual retirement.
- Other than stocks, financial products can also be purchased on margin. Margins are expected to hike the profit and loss potential.
What are some of the important definitions related to Stock Margins?
Margin Call
The margin which is used to deposit additional money on the demand of a broker to bring up the margin account to the requirement of margin maintenance is known as a margin call.
Open Trade Equity (OTE)
The net unrealized loss or gain about open contract positions is known as open trade equity.
Buying On Margin
The purchase of an asset on paying the borrowing and margin balance from a broker or bank is called buying on margin.
Variation Margin
A payment that is made to respective clearing houses by the members based on critical price movements is known as variation margin. The lowest margin in India depends on various factors which relate to more of brokers than the brokerage.
