Advantages and benefits of Margin Trading Facility
A margin trading facility is a key offering from brokers that allows you to borrow funds from them and trade. You can do this when you do not have enough money in your account or borrow additional funds to trade. If used with prudence, margin trading can offer several advantages. What are these? Let us find out.
Margin trading advantages
Here are some key benefits of using a margin trading facility:
Increases your buying power
One of the vital features of margin trading is that it increases your buying power. By paying only a fraction of the trade value upfront, you can borrow funds from your broker to buy a large amount of stock.
Let us understand it with an example. Suppose you have ₹10,000 in your account, and you want to buy stocks of a company that you feel can do well in the future, trading at ₹500 per stock. With the money available, you can buy 20 stocks. However, if you borrow ₹10,000 from your broker through margin funding, you can buy 40 stocks of the company.
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Allows you to cash in on market opportunities
Stock market success hinges largely on how well you can grab the opportunities available. Margin trading ensures you don’t let an opportunity slip due to lack of funds. If you spot a stock or theme poised to do well, margin trading allows you to act swiftly. For instance, if you find a stock with significant growth potential, through margin trading you can acquire a larger position than your cash alone would permit. If the stock performs well, it can have a positive impact on your overall portfolio.
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Quick to avail
This is another benefit of margin trading. Conventional borrowing methods can be time-consuming, and you might need extensive paperwork. The case is different with margin trading. To access MTF (Margin Trading Facility), you need to be an Indian resident. It is important to note that MTF is regulated by SEBI and is not available for Non-resident Indians (NRIs). You can receive funds promptly if you meet your broker’s eligibility criteria for margin funding.
You can avail the margin trading facility for your trading account in a few clicks by accepting the margin trading facility disclaimer.
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Can help you diversify your investments
Remember how your elders told you not to keep all your money in the same pocket but to distribute it in different places? The idea was to make sure not everything was lost if something went awry during travel. Trading is no different. You need to diversify well to mitigate risks.
With the funds obtained through margin trading, you can trade in stocks of different companies across industry verticals. This helps reduce risk and gives you exposure to a wider range of market opportunities with the same initial amount that you have to invest.
In conclusion
Incorporating margin trading into your investment strategy can improve your trading capabilities and help capitalise on market opportunities. By leveraging borrowed funds, you can increase your buying power, seize timely market opportunities, and diversify your investments effectively.
While margin trading offers several benefits, it is essential to approach it with careful planning and prudence. Proper management of margin trading can lead to improved investment outcomes and greater financial flexibility. As always, ensure that you understand the risks involved and make informed decisions to optimise the advantages margin trading can provide.
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This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.
Investments in securities market are subject to market risks, read all the related documents carefully before investing. Brokerage will not exceed SEBI prescribed limit. The securities are quoted as an example and not as a recommendation. SEBI Registration No-INZ000200137 Member Id NSE-08081; BSE-673; MSE-1024, MCX-56285, NCDEX-1262.
