What Is Margin Trading In The Financial Market?

By Author: alexander
Total Articles: 10
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In the financial market, margin trading relates to where investors trade more than they can bear. Margin trading also belongs to intraday trading; various online brokers present this service.

Margin trading includes selling and buying securities in the same trading session. Over time, multiple brokerages have eased the procedure on time duration. The method needs an investor to speculate or imagine an asset's price movement in a particular concourse.

Margin trading is a comfortable way of earning a fast buck. With the arrival of electronic exchanges, the once specialised domain is now open to even pitiful traders.

The method is relatively simple. A margin account provides you with the sources to buy more quantities than you can afford at any point in time. For this view, the broker would grant the money to purchase securities and keep them as security.

To trade with a margin account, you need first to demand your broker to start a margin account.

This requires you to spend a specific amount of money upfront to the broker in cash, named the minimum margin. This would benefit the broker ...
... from squaring off, should the trader lose the bet and fail to recover the funds.

Once the account is open, you are asked to pay an initial margin (IM), a specific percentage of the total traded worth pre-determined by the broker. Before
you begin trading you need to identify three essential steps. First, you need to control the minimum margin (MM) within the session because the asset price can fall more than one had predicted on a very volatile day.

For instance, if assets priced at $ 500 fall 5.25 percent and the MM and IM are 4 per cent and 8 percent of the total worth of the shares purchased, respectively, then the trade-off is 8%-4.25%=3.75% will be smaller than the MM. You will either give the broker more money to manage the margin, or the trade will get squared off automatically by the broker.

Next, you need to square off your position at the close of every trading day. If you have purchased stocks you have to sell them. And if you have sold stocks, you will have to purchase them at the closing of the day.

Thirdly, switch it into a delivery order, in which case you will own to keep the money ready to purchase all the shares you had bought during the trading session and to pay the broker’s fees and additional charges.

Bottom Line:

Margin trading can be a great option in every financial market. Traders can take advantage of the leverage and make a good profit in intraday trading with less amount of funds in their account. But market players should keep in mind that as they can earn huge profits at the same time, they can also attract colossal losses.

Therefore they should use margin wisely and by understanding the dynamics of the financial markets properly. Brokers can play a vital role in margin trading.

So choosing the right is essential as different brokers offer different leverage. ETFinance is the top broker in the industry that offers maximum leverage of 1:500, with the correct trading tools and services. It is the most reliable and trusted broker as it is regulated and authorised by the top level of financial bodies.