The stock market is attracting many Indian citizens as well. Buying stocks on margin is one approach some investors take. Though it sounds fascinating, there are hazards involved as well. You ought to know how it works before you try it.
Margin buying stocks: what is it?
Buying stocks on margin is borrowing money from your broker to purchase shares. You pay just a fraction of the whole cost. The broker hands you the rest as a loan.
For instance, you only have to pay ₹50,000 if you want shares valued ₹1,00,000 and your broker offers 50% margin. The last ₹50,000 is borrowed.
How does it work?
You open a margin account under your broker.
You lay some money—that is your margin.
The broker loans the rest to purchase shares.
On the borrowed sum, you pay interest.
Usually within a short period, you have to return the loan.
Benefits of Margin Stock Purchase
Because you can purchase more shares with less money, some people use buying stocks on margin.
Should share prices rise, your profits will increase as well.
Short-term trades can find it helpful.
Risks You Should Know
Although buying stocks on margin sounds appealing, it is dangerous since your losses will be more should share prices drop.
You still owe the broker, even though you lost money.
You might get a margin call; the broker might ask you to rapidly add more money.
Should you find yourself unable to pay, you could have to sell your shares at a loss.
Who Should Steer Clear of Margin Stock Purchases?
Modern investors
Individuals lacking knowledge of the market
People with low savings
Anyone unable of managing unexpected losses
Guidelines for More Safe Margin Use
Consider these suggestions if you’re still considering buying stocks on margin:
start modest
Invest in stocks you know only.
Save money just in case of margin calls.
Steer clear of borrowing over extended lengths of time.
Use margin for cautious stocks not here.
Final Thoughts
While buying stocks on margin might increase profit, it can also cause more stress. Steer clear if you are fresh on the market. Learning the fundamentals and investing sensibly is wiser for Indian investors. Before acting, be sure you are ready.
