How to Activate Margin Trading Facility

It is essential to activate margin trading facility first. After that, you can place margin orders. Activating your margin trading account is a one-time activity, and you don’t need to do it each time. However, you will have to activate your margin trading once at the very beginning. You may be wondering how I can activate margin trading facility in India. Let’s discuss the benefits of margin trading and its features in detail. 

Benefits of Margin Trading

Here are the following benefits of margin trading.

Leverage

You can avail of the leverage strategy to increase the returns on your investments. You will get greater exposure with a comparatively small investment in the market. In the leverage system, you will get an opportunity of borrowing money and multiplying your buying power in the market.

Competitive Interest Rates

Margin interest is the interest on loans between an investor and a broker. There are competitive interest rates in margin trading. You can select the best interest rate to enter the margin trading. Before starting margin trading, make sure you enquire about margin trading. 

Diversification

In margin trading, you can take advantage of portfolio diversification. Diversifying a portfolio means dividing your money across various asset classes to reduce risk and increase returns. 

Easier Financing Option

There is no need for either additional paperwork or fees. You can easily participate in margin trading with ease and comfort within a few clicks. All you need to do is download a respective app and open a margin trading account on your smartphone. 

Encash on Price Fluctuations

Margin trading opens a door for investors who want to take advantage of the price fluctuations over the short term. All you need to do is keep your eyes on the price fluctuations from which you can drive an opportunity in your favor. 

Features of Margin Trading

Here are the features of margin trading. 

• In margin trading, you can leverage positions in securities that don’t belong to the derivative segment.
• SEBI permits those brokers to offer margin trade account opening facilities in India who have taken permission from them. 
• SEBI and respective stock exchanges pre-define securities which can be margin traded.
• It is possible to carry forward the margin created positions up to a maximum of N+T days, where N means the number of days and T means the trading days.
• You will have to accept the terms and conditions of your broker to open an MTF account. You acknowledge that you know the benefits and risks involved by accepting it.

How Should I Activate Margin Trading Facility?

You can start trading on margins when your margin trading account is activated. Here are the following methods for the margin trading facility activation. 

• You can send an email from your registered email ID: When you send an email via your registered email id, you will have to make margin activation requests and quote other relevant information like client code and Demat code. 
• You can call your equity advisor using your registered phone number: While calling your stock broker, make sure you use your registered mobile or landline number to request it. Making a phone call using your registered phone number means authenticating yourself. You must contact your broker at their official call center number.
• By sending a written signed letter for the same, you must do it offline if you don’t want it electronically. You need to send your written document with your signature to the office branch or the head office. 
• Login to your account: There is another way to log into the online trading account using your device, PC, laptop or mobile phone. Then, follow the process to activate margin trading facility. You will have to use your internet password authentication to request Margin trading facility activation.

How Should I Open a Margin Trading Account?

Here are the following ways for Margin trading account opening:

• Make sure your Demat account is linked to your regular trading, as you will have to use these two linked accounts to activate margin trading facility. The activation time for MTF is  24-48 hours. 
• After activation, the value of shares in the linked Demat account will be automatically eligible as margin, but I will depend on stock closing the previous day. 
• Your bank account linked to your Demat and trading accounts will receive the dividends. So you don’t have to request it separately. 
• After opening a margin account, the interest will be applicable on the debt amount standing to your trading account. 
• When there is a credit to your trading account, the margin trading facility will have no interest. It is similar to an overdraft facility. 
• Make sure that you click on a margin trading buy. After clicking on it, the MTF rules will be automatically applied to trading.

Risks Involved in Margin Trading

Here are the following risks in margin trading:

Magnified Losses

If there is a way to identify margin, there is also a way for loss identification. It is better to identify risk factors associated with your investment to avoid losing more. 

Minimum Balance

Maintaining a sufficient balance in your margin trading account almost every time is necessary. Otherwise, you will have to sell some or all the assets for maintaining the minimum balance.

Liquidation

You will have to make sure to meet a margin call. Your broker will use the right to liquidate your assets to recover the sum when you cannot keep the margin trade agreement up.

Frequently Asked Questions (FAQs)