What is Intraday Margin?
Intraday margin trading is popular among new and seasoned traders simply because it promises the potential ro make quick returns and close the trade in a short time without locking capital.
The funds required for intraday margin trading is lesser compared to capital required for delivery trades .
For example, if you have a capital of Rs 100, you can buy shares on delivery basis for Rs. 100. But with the same capital of Rs 100, you can trade intraday for up to a value of Rs. 400.
What is Margin in Intraday Trading?
To define the term margin in intraday trading, first let us understand ‘Day Trading’ or ‘Intraday Trading’.
In intraday trading, you can buy or sell a share within a market session day i.e. intraday, without taking the delivery of the particular stock in your demat account.
For example, you buy a stock at 11 am for Rs. 200. During the day, the value of the stock rises to Rs. 220.
At this point, you sell the share and make a profit of Rs 20 per share. Suppose you had purchased 1000 shares for Rs 200,000.
Your overall profit is Rs 20,000 i.e. 10% within a day.
This can work the other way round too, i.e. you can make losses too as quickly, if the share price falls.
Now let us take an example to understand intraday margin trading.
Suppose you spot an opportunity where current share price is Rs 200. You have Rs. 50,000 capital with you, but you’d like to buy at least 1000 shares that require a capital Rs 2 lakhs+.
You can place Rs 50,000 of your capital in your trading account and apply for 4x (4 times) margin facility with your broker. The broker allocates funds equal to 4 times your initial capital i.e. Rs 2,00,000.
Now you have Rs 2,50,000 in total to trade.
You can buy 1,250 shares.
Assume the share price goes up to Rs. 210.
Your profit = 1250*10 = Rs. 12,510
Profit = 5% on total capital
Profit = 25% on your initial capital (less interest paid)
With leverage, you can earn a much larger profit with a small initial capital.
However, the downside will also be magnified due to leverage.
Majority of the brokers offer credit or loan to their customers (basis eligibility) known as margin in intraday trading. Margin Funding is also known as MTF or PayLater.
Your broker will charge an interest on the funds given to you calculated for the amount of funding utilised and number of days the margin funding was utilised.
Who is Eligible for Intraday Trading Margin?
Any investor can open a demat and trading account with intraday trading enabled, subject to documents submitted for account opening.
Intraday margin trading is enabled by default for all the traders who opts for equity trading. But to trade futures and options segment , you need to give income proof to trade intraday.
As an Intraday trader,
you can compare the offering from different brokers and go ahead with a registered broker that offers better interest rates, quick processing along with best trading features and user experience.
SEBI New Rules for Intraday Margin
To regulate the market and risks involved, SEBI mandated that from September 2021 a stockbroker can provide a maximum of 5x margin to traders. Earlier the limit used to be even 40-50 times before SEBI came up with new margin guidelines.
Apart from this, a trader needs to maintain 50% of the investment value as the initial margin. As for the maintenance margin, the range has to be 40% of the current market value.
Also, as per the new SEBI guidelines for intraday trading margin, a trader needs to fulfill all the margin requirements before the start of the market session.
What is Day Trading Margin Call?
While margin trading gives you additional buying power, it can also work the opposite way. It is prudent for a trader to maintain the margin and maintenance value in their account to avoid margin call.
A margin call is a shortfall in minimum amount required in the account as margin, which would be recovered by the broker through squaring off position, if margin is not adhered to.
Let us understand this by an example.
Suppose yoy have Rs 20,000 capital and you apply for margin. Your purchase value is 1,00,000 with 5x margin.
You buy share Y worth Rs 1,00,000. After a while you buy share Z for Rs 50,000. There is a shortfall of minimum required margin in your account.
If you do not square off share X, you will receive a margin call from your broker to add more funds or square off the position.
Benefits of Intraday Trading Margin
- Intraday margin allows you to access more capital quickly to take advantage of sport opportunities in the market and earn higher returns even with a small upfront investment.
- Intraday trading margin usually carries a lower interest rate compared to retail loan products.
- Intraday margin is processed instantly without any hassles or time consuming paperwork required for a loan. You can avail up to 5x instant margin facility for equity intraday trading with Rupeezy.
- You can pledge shares in your demat holding and avail margin funding against the applicable value.
- Many brokers offer special rates for margin funding. Rupeezy offers one of the lowest MTF rates of 3.99% on equity delivery with annual subscription. For more information about Margin Trading Facility Click Here.
Disadvantages of Intraday Margin
Just as profit potential is higher with intraday margin trading, the propensity to suffer losses is also magnified with intraday margin trading.
You need to maintain a minimum balance in your account as per SEBI norms, or the broker can liquidate your holdings and it results in losses.
Conclusion
Traders can utilise intraday margin facility to enhance liquidity and their profit potential.
Intraday margin trading can cause a huge monetary loss in a short span of time,
therefore it is important to select the right stocks carefully, invest as per one’s risk appetite and the ability to repay and financial goals.
Rupeezy brings you the best offers on intraday and delivery trading, visit Rupeezy.
FAQs
Q. Do I need to maintain a minimum balance while margin trading?
A. Yes, as per SEBI rules, you must maintain a minimum stipulated balance amount in your account if you are avail margin trading facility.
Q. How much margin is required for intraday?
A. As per SEBI rules, you must maintain 20% of the investment value as the initial margin in case the scrip allows for 5X margin.
Q. Is the intraday trading margin the same for all shares?
A. The intraday margin can differ for different securities. You can check the margin for each scrip using the margin calculator.
Q. How can I start intraday trading with Rupeezy?
A. 1. Go to Rupeezy.com, click open an account.
After adding your details, click eKYC verification.
- Upload your documents.
E-Sign Aadhar through OTP, add nomination.
- Go to My Watchlist, click Search.
Select the stock you want to purchase or sell
- In Place Order, select ‘Intraday’
Enter Quantity and Price and select Buy