Real Secrets About Margin Trading

The Bitcoin Code Traders are always dedicated to buying stocks. In general, there are two basic methods by which a trader can purchase their required stocks. One way is by getting the stock by paying the stock price fully and the other one is through a margin account, which is our prime concern.

Definition of Margin Trading

By employing a margin account for purchasing the share, the buyer tends to a pay only a portion of the whole rate and the associated broker, also known as the margin provider lends the rest of the money. In return for this help, the buyer promises to pay pre-specified interest on the broker’s loan in addition to the usual commission fees. For security, the broker holds on to the stocks. Bonuses earned from these stocks are used to help counter the payment interests. Thus, margin trading can be better defined as a leverage means of the transaction whereby the nominee pays for the stock using his own money borrowed from the broker.

Relation with short sales

When used with short selling, the margin trading requires its investors to have both initial and maintenance margin.

  • Initial margin comprises at least 50 percent and is different among countries, which further means, the investors can borrow mainly up to 50 percent of the stock value. Thus, it can be concluded that the lower the value of margin requirement, the more the investor can borrow.
  • Further, for the maintenance margin, the minimum value comes down to at least 25 percentages for any purchases made and to protect the broker against the abrupt stock price declines. Or else, if the margin value falls below the maintenance margin, the investor will frequently receive calls or get a notice from the concerned broker to append additional sum to their respective margin account. In common, the brokers grant a time of 3 to 5 days for adding up margin after a margin call has been received by the investor and if the call criteria fail to be met, the broker takes the stock to sell it to another one to pay off the loan.

Major Pros of Margin Trading

  • Professional and Experienced investors who are well studied of the trend patterns of a stock market surely can earn a huge profit with merely less investment.
  • Moreover, they can really exploit the chance of increased buying power with less money.
  • Suitable for day traders, who need to achieve more trading numbers with a relatively high volume of stocks.

 

 

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