Glossary
Margin
Borrowed money from your broker to trade larger positions than your cash allows.
Simple explanation
Margin amplifies both profits and losses.
If you buy ₹1 Lakh of stock with only ₹20,000 cash, you are using 5x leverage.
If the stock drops 20%, you lose 100% of your cash.
In India, SEBI regulates how much margin brokers can offer. For intraday equity trades, brokers like Zerodha offer up to 5x margin on certain stocks. For F&O trades, the exchange sets specific margin requirements (called SPAN + exposure margin) that vary by stock volatility.
A 'margin call' happens when your losses eat into the margin you deposited. Your broker will ask you to add more funds immediately, and if you do not, they will square off (forcefully close) your position. This often happens at the worst possible time, during sharp market falls on BSE or NSE.
After SEBI's peak margin rules introduced in 2021, brokers must collect upfront margins even for intraday trades. This reduced the excessive leverage that was causing retail traders to blow up their accounts, but margin trading still carries serious risk.
If you are a beginner, avoid margin trading entirely. Focus on cash delivery trades in your demat account first. Once you understand risk management and have at least 2-3 years of experience, you can gradually explore margin with small amounts you can afford to lose completely.
Real-world example
You have ₹50,000 in your Zerodha account and use 5x margin to buy ₹2.5 Lakhs worth of Tata Motors shares for an intraday trade. The stock drops 4% during the day, a ₹10,000 loss on the position. But since you only put in ₹50,000 of your own money, that 4% stock move translates to a 20% hit on your capital. If the stock had dropped 10%, you would lose ₹25,000, half your capital in a single day.
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