Margin trading allows investors to take larger market positions using borrowed funds, increasing both potential returns and risk. In this blog, we will explain how margin trading works, why traders use it and the key risks every investor must understand.
Margin trading is a way to trade in the stock market using borrowed money. Instead of paying the full amount upfront, you invest a smaller portion of your own capital and the broker funds the rest. This allows you to take a larger position than your actual cash balance would normally permit.
Margin trading lets you increase your buying power. While this can increase profits, it also increases risk. That’s why margin trading is often described as a double-edged sword.
Source: News Nation
To start margin trading, you need a Margin Trading Facility (MTF) account with your broker. When you place a trade, you pay a portion of the total value called the margin and the broker lends you the remaining amount. Whether you are entering via a market or limit order, the margin obligation remains fixed based on the transaction value.
For example, if a stock is worth ₹1 lakh and the margin requirement is 25%, you invest ₹25,000 of your own money. Your broker provides the remaining ₹75,000. If the stock price rises, your gains are calculated on the full ₹1 lakh exposure, not just your ₹25,000. However, if the stock price falls, losses are also calculated on the full amount.
When you trade on margin, your broker continuously monitors your position. If the value of your investment falls and your margin drops below the required level, the broker issues a margin call.
A margin call means you must add more funds or reduce your position. If you fail to act, the broker has the right to square off your position automatically to protect the borrowed money.
Source: Bajaj Finserv
Margin trading is best suited for experienced traders who know how to analyse stock trends, manage risk, and size positions correctly.
Beginners should be cautious. Without proper knowledge, margin trading can quickly wipe out capital. It is better to first master stock market basics and cash-based investing before exploring leverage.
Even experienced traders usually limit margin exposure and avoid using it during highly volatile or uncertain market conditions.
| Criteria | Margin Trading | Regular Trading |
|---|---|---|
| Capital Needed | Partial (20-50%) | Full amount |
| Exposure | 2-5x leverage | 1x only |
| Costs | Interest + pledge fees | Just brokerage |
| Risk | High (amplified losses) | Moderate |
| Best For | Short-term bets | Long-term holds |
Margin trading can enhance returns, but it also magnifies risks. Borrowed money makes trades faster and riskier, leaving little room for error. For most investors, understanding Margin trading matters more than using it. If you do use margin, strict risk control, clear exits and emotional discipline are essential.
Disclaimer: This blog is for educational purposes only and does not constitute investment advice, an offer to buy/sell securities, or a recommendation. Past performance is not indicative of future results. Investors should consult a SEBI-registered advisor before making decisions. Mention of third-party entities is for illustration only and not an endorsement. Readers are advised to consult their financial advisors or conduct independent research before making any investment decisions. Past performance is not indicative of future results. MNCL is a SEBI-registered intermediary (SEBI Registration No: INZ000008037). For further details, visit www.sebi.gov.in.
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Monarch Networth Capital Limited (‘MNCL’) | CIN No.: L64990GJ1993PLC120014
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Monarch Networth Capital Limited (‘MNCL’) | CIN No.: L64990GJ1993PLC120014
(As per LODR Regulations and Companies Act, 2013)
Contact information of the designated officials of the listed entity who are responsible for assisting and handling investor grievances : Mr. Nitesh Tanwar
Monarch Networth Capital Limited
Unit No. 803-804A, 8th Floor, X-Change Plaza, Block No. 53, Zone 5, Road-5E, Gift City, Gandhinagar - 382050, Gujarat
Ahmedabad
“Monarch House”, Opp Prahladbhai Patel garden, Near Ishwar Bhuvan, Commerce Six Roads, Navrangpura, Ahmedabad – 380009
Mumbai
Monarch Networth Capital Limited, G Block, Laxmi Tower, B Wing, 4th Floor, Bandra Kurla Complex, Bandra East, Mumbai - 400051.
Phone: 022 - 66476400 / 66476405
Email: cs@mnclgroup.com
Email for Grievance: cs@mnclgroup.com
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