John
I am not sure if there is a phrase called marginal trade. But there is one called trade on margin.
Essentially this means you can trade with more money than you actually have. A specific portion of the money will be provided by broker at some interest rate. You always have to maintain this portion.
Example:
You have let's say 100 Rs. in your account and you want to buy stocks of Infosys at Rs. 1 a share. If you do cash trading, you can buy 100 shares. If the prices go up to Rs 1.5, you have made 50 Rs. (100*1.5 - 100*1).
This is 50/100 = 50% gain.
Now trade using margin.
Say you asked your broker that I want to trade on margin and broker says that you have to maintain 25% in the margin account. Essentially it means you can trade up to Rs. 400 (since you have 100 Rs. in the account)
Now do the same scenario. You can buy 400 shares of infosys with 400 Rs. The price goes to 1.5 Rs. Your assets now became 400*1.5 = 600 Rs. You sold it and got 600 Rs. You pay your broker 300 Rs that he provided (400 of investment - your initial money of 100 Rs.).
Assume there is interest of 5% on 300 Rs that broker charged. So you pay 300 of principal + 15 rs of interest = 315. Your gain is 600 - 315 = 285 Rs. Since your initial investment was 100 Rs, the gain is 185%.
This is fine as long as the matket goes up. When the market comes down, your loss get inflated in the same ratio.
Also you always have to maintain 25% of the total value. Say the prices go down to 0.90 Rs per share. The total value becomes 360 Rs (400 * 0.9). Since the broker has given 300 Rs, your investment is just 60 Rs which is less than 25% of total value. The 25% of 360 is Rs 90 and hence you have to further deposit (90 - 60) = 30 Rs to your account.
Active Topics
Memberlist
Calendar
Search
Help
Register
Login
IP Logged
