Traders at times miss out on the opportunity to profit from the present market conditions due to the shortage of funds. This situation can be avoided by availing the facility of intraday margin. Intraday margin allows a trader to trade even if they don’t have enough funds. In this article, we will discuss what intraday margin is and how traders can benefit from that.
Intraday trading means you need to buy and sell the security on the same day. Here the traders target to earn profit from the movement of security prices. To book higher profits in intraday trading, the trader needs to trade in high volume. To help you process the high volume trades in intra-day, you can avail of the option of intraday margin.
Intraday margin allows traders to borrow funds from brokers to buy more securities using leverage. For this, you need to deposit a certain percentage of cash or pledge your existing investments to increase your leverage, which increases your buying power and profit possibilities.
As per the SEBI guidelines you need to maintain a minimum margin of 50% of the total trading value and a maintenance margin of 40% of the current market value of the security being traded. The margin requirement protects brokers in case trades go in the opposite direction and the trader defaults.
Let’s understand how traders can benefit from the intraday margin.
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Intraday trading at times allows you to gain profit from short-term fluctuations in security prices. This opportunity can be maximized by availing leverage and increasing the trade size with an intraday margin.
Here you can buy the security even if you don’t have enough funds and gain profit by squaring off the position before the day ends using leverage.
You can increase your purchasing power by trading on margin. This is because trading in margin allows you to buy more securities with the same amount of capital using the benefit of leverage. This way you can maximise returns by getting involved in large trades.
Previously margin trading was allowed only on a cash basis but as per the SEBI regulations issued in 2018 if the broker permits then you can even use your shares in your Demat account as collateral for margin trading.
This provides flexibility to trades for using margin facility and levelling up their trading game.
SEBI brought a new rule of margin pledging on 1st Sep 2020. As per this new rule now the broker is not allowed to transfer the collateralized securities from your account for providing you leverage on margin. The broker can only mark the lien on the pledged securities and pledge the same to the clearing corporation.
In addition to this brokers will also have to get a one-time password from traders in order to pledge the shares. This makes trading on margin more secure.
If you are already into online stock market trading then using intraday margin can help increase the probability of profits. This facility helps you to maximize returns by increasing your purchasing power.