What is Intraday Margin Trading?

What is Intraday Margin Trading?

Intraday trading, also known as day trading, involves buying and selling shares within the same day to take advantage of short-term market fluctuations. While margin trading can boost profits, it also carries risks like substantial losses. Successful intraday trading requires knowledge of SEBI regulations, margin calls, and margin rules. This piece explores how intraday trading margins are generated by leveraging borrowed funds to enhance buying capacity and potential earnings.

What is Margin in Intraday Trading?

Margin in intraday trading refers to a loan made by the broker to the trader that is used to place orders. 

Suppose you have Rs 5000 to put towards shares. You decide to start day trading after opening an online trading account. You do some market research and discover that XYZ Limited’s shares are predicted to increase later today. 

Since you have Rs. 5,000 to invest, you can buy shares worth that sum and sell them at a higher price to make a profit. Let's assume that XYZ Limited's shares now cost Rs. 100 each. Therefore, with the Rs. 5000 you must deposit, you will purchase 50 shares. The share price rises to Rs.105 during the day. You sell the stock and make a 250 Rupee profit.

However, if you had more capital to invest, you might have made more money as you were confident that the price of the shares of XYZ Limited would rise. To enable traders to purchase more than their available cash will allow, stockbrokers provide a margin facility. They provide various margins for various shares.

Utilising the margin facility increases both your potential gains and losses in intraday trading. Additionally, you must follow the broker's maintenance margin requirements and margin calls. Borrowed money, margin calls, and maintenance requirements can all increase losses if the trades turn bad. However, the margin in day trading may be quite helpful to you if you use it correctly and consistently. 

Now let's get to the bottom of what is 5x margin in intraday trading and what is e-margin trading.

Trading with a 5x margin during intraday trading gives traders the ability to control positions worth five times as much as their initial investments, potentially boosting profits or losses.

Investors have greater access to leverage and can trade securities more effectively with a digital platform that facilitates margin trading.

Start Your Stock Market
Journey Now!

50 Years Trust |₹0 AMC |₹0 Brokerage *

Table of Content

  1. What is Margin in Intraday Trading?
  2. Margin Requirements by SEBI
  3. Important Terms in Margin Trading
  4. What are Day Trading Margin Calls?
  5. Benefits of Intraday Margin Trading
  6. Drawbacks of Intraday Margin Trading

Margin Requirements by SEBI

SEBI recently modified its intraday margin guidelines to satisfy margin obligations. Previously, the margin needed was calculated after the trading day; however, traders must now complete their margin obligations at the start of each new intraday transaction. In addition, the margin requirement for cash market trading in 2020 has been reduced. 

Intraday traders, for example, must deposit around 20% of their overall transaction volume with their broker to use the margin facility. Traders can use any existing securities as collateral.

Important Terms in Margin Trading

Here are some of the important terms you should always remember in margin trading:

  • Margin Call: The broker issues a notification when the trader's account falls short of the required margin maintenance amount and requires the deposit of additional funds or the liquidation of positions.
  • Margin Requirements: The amount of money typically required by traders to deposit with their broker to use the margin facility is a percentage of total transaction volume.
  • Securities Transaction Tax( STT): STT is a tax that brokers automatically deduct from the stock market when purchasing and selling securities.
  • Capital Gains Tax: A tax that is levied on the sale of securities and is either short- or long-term in terms of holdings.
  • Dividend Distribution Tax( DDT): A previously levied tax on businesses that distribute dividends is now paid by individuals.

What are Day Trading Margin Calls?

Day trading margin calls and the online day trading maintenance amount are now required in India for intraday margin trading. If you trade on margin during the day, you must have a specific amount in your account to preserve the margin.

A margin call will be issued if the margin is not maintained in day trading during the same day. To comply with this margin call and return your day trading account to the intraday margin maintenance amount, you will need to either deposit more money into your account or cancel the positions

After learning the basics of what margin is in intraday trading, continue reading to learn more about margin calls.

When an intraday deal underperforms for any reason, a margin call may cause expenses to spike. For a better understanding of margin in day trading, consider the following example. Take into account a trader who has Rs.40,000 more than is required for margin maintenance.

Under the condition that they trade on a 5x margin (5x 40,000), it will provide the trader purchasing power of Rs.2,00,000 in day trading. Let's now imagine that the same trader purchases Rs.1,80,000 worth of ABC company stocks at 9:45 a.m. The trader buys XYZ shares worth Rs. 1,60,000 on the same day at 10 o'clock, 15 minutes later. 

In this instance, the trader went above their maximum purchasing power. The trader will receive a day trading margin call on the next trading day, regardless of whether they are ready to sell both of their stock holdings during the afternoon transaction.

Benefits of Intraday Margin Trading

Now that you are aware of what intraday margin is, let's look at some of the benefits it offers while day trading online:

  1.  You have the option of taking advantage of a profitable trading opportunity if your capital funding is insufficient by using the margin facility.
  2. If your stockbroker is on board, you have the option to use the shares in your Demat account as margin collateral.
  3. The intraday margin makes it possible for you to purchase more shares with the same amount of capital, increasing your capital's purchasing power.
  4. By utilising the intraday margin capability, you may improve and increase ROI.

Drawbacks of Intraday Margin Trading

Everything has drawbacks, and using leverage when day trading online is no different. You should be aware of the following drawbacks of intraday margin:

1. The intraday margin is also in charge of amplifying your losses in addition to generating bigger earnings. You risk losing a significant portion of your cash if one deal goes wrong.

2. Over-leveraging is among the most frequent causes of substantial losses in the stock market. Many new traders who engage in high-margin Internet day trading lose all of their money.

3. You will always need to satisfy the minimum balance requirements. If you don't fulfil these criteria, your broker will close the deal. This will steal away your chance to make a profitable deal.

Intraday margin trading is a tough trading activity that beginners should learn carefully. Even those with knowledge should use caution while employing margin for the same. Margin offers traders more purchasing power, but it should be utilised carefully for day trading to prevent traders from suffering significant losses. Limiting your activities to the parameters established for the margin account can cut down on margin calls and the subsequent need for extra money. Avoid experimenting with a margin account if you are using an online trading app for day trading for the first time. 

Margin Facility for Intraday Trading FAQs

The term "margin facility" in intraday trading refers to a feature that allows traders to borrow money from their broker to boost their purchasing power and take bigger positions in the market.

The margin facility can provide traders with more liquidity and the flexibility to open larger positions, which might improve their rewards on profitable transactions.

Compared to investing with cash, trading on margin entails more risks. Losses that surpass the trader's initial investment may result from a transaction that doesn't go as planned, which may trigger a margin call where more money must be placed to keep the position open. 

A margin call is issued whenever the value of a trader's position decreases and crosses a predetermined mark established by the broker. To satisfy the margin requirements, the trader must then deposit more money or liquidate holdings.

Before utilizing the margin facility, traders should take into account their degree of experience, risk tolerance, and financial status. It's critical to have a firm grasp of the principles of margin trading, create a trading plan, and be ready for any risks.