In a major development set to benefit retail stock investors, leading brokerage firms have introduced margin trading facilities for clients with demat accounts. This facility enables investors to fund a portion of their share purchases through loans from brokers, helping them expand buying capacity beyond their existing capital and maximize returns during bull runs. Demat accounts play a pivotal role in transparently simplifying processes around availing, managing, and monitoring margin trading limits.
Margin Funding Made Easy By Demat Route
Under a margin trading facility, brokers provide funding up to a prescribed limit for clients to buy shares, known as the margin amount. Brokerage houses transfer this margin directly to the client’s demat account. The margin granted also depends on the market value of other stocks already in the Demat account. Additionally, investors can easily pledge shares held in their demat accounts to brokers as collateral to obtain further margin for fresh stock purchases.
The Demat account statement clearly reflects all transactions done using the margin funding, including the name of the scrips bought, date of purchase, quantity purchased, and funding amount utilized. Investors can track margin available, mark-to-market losses or gains on funded stocks by accessing their demat account instead of manual follow-ups. Brokers also set margin thresholds based on the overall value of the portfolio in the demat account, below which investors need to pump in additional cash or stocks to maintain holding.
Leading stock trading apps like mStock offers smooth integration of margin funding facility with demat accounts for retail investors.
Easy Liquidation of Positions Through Demat Route
The demat mechanism also enables the smooth liquidation of margin-funded positions. If stock value falls below the broker-prescribed minimum margin due to market fluctuations, positions are squared off automatically through the demat route once the threshold is breached, ensuring risk management. Margin requirements also come down significantly for stocks funded through this route.
Integrating the margin funding process with demat accounts enhances transparency, cuts operational costs, and makes the facility more efficient for stock brokers and retail investors. Market experts believe this development will lead more first-time investors to consider margin funding as a viable option for boosting trading volumes. According to industry data, over 20 lakh demat accounts have already signed up for margin trading in the last 18 months.
To give you actual numbers – margin funding provided by share brokers stood at Rs 54,537 crore in January this year. That’s a huge jump compared to Rs 29,500 crore in January 2022 and Rs 7,100 crore in February 2020!
Over the last 2-3 years, the amount invested by retail investors via trading account has increased almost seven times!
The reasons are clear—with a robust economy, Indians have higher disposable incomes nowadays. More of this is channelled into the booming stock markets. Investors are willing to take on increased risks for higher returns by leveraging broker credit. Online brokerages are also making margin trading very easy.
Given the trends, market experts predict that margin funding figures will continue rising steadily as more first-time retail investors enter markets. Simple integration with demat accounts has also enabled easier access to margins. So, favourable market conditions coupled with a higher risk appetite drive higher margin trading volumes.
Tips to Use Margin Trading Facility
- Sign margin trading agreement with broker outlining all terms and conditions. Complete documentation and account activation process
- Maintain a minimum margin in cash or securities as per broker norms. Margin is a percentage of the total transaction value.
- Once the margin limit is set, place buy orders by paying a small upfront amount.
- Keep checking that the margin available is within the maintenance margin. If it falls below the level, brokers can ask to deposit more cash/shares.
- Use stop-loss orders and keep reviewing performance. Effective management minimizes risk.
- Square off shares bought on margin or repay the loan amount through the account.
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