Until last year, the margin trading was allowed only with cash and providing shares as collateral was not allowed. The Securities and Exchange Board of India SEBI recently relaxed this criterion by allowing investors to create positions under the margin trading by furnishing shares as security.
You need to have a margin account with the broker to avail the margin trading facility MTF. The margin varies across brokers. You are supposed to pay a certain sum minimum at the time of opening the MTF account. You are required to maintain a minimum balance at all times. If you fail to maintain the minimum balance, then your trade gets squared-off.
The squaring-off position is compulsory at the end of each trade session. Mutual fund units cannot be bought through margin trading because of their trade mechanism.
Mutual fund units are not sold like stocks. However, from that point on, the outstanding loan value is generally based on the market. This means that every day, as the value of your holdings and cash balance change in your margin account, the amount you are able to borrow against them will vary.
In a favourable bull market, this can be an effective strategy—but it can work against you in an unfavourable bear market. We explain more below:. If the loan value, based on current market price, is less than the loan value extended to you when you purchased the stock i.
This is when a brokerage requires you to put up more cash against the loan to bring your account back to a margin excess position. You may need to place a sell order, deposit money or transfer in margin-eligible securities.
On the upside, if the loan value is more now than at purchase i. The following table shows what happens to your margin position if the stock price changes. You will need to deposit additional funds or marginable securities, or sell some shares to cover your margin shortfall.
When you borrow funds to invest in income-producing assets in a non-registered account, interest costs are tax-deductible. Canadian tax laws allow you to deduct the interest cost from the taxable income generated in your account includes interest, dividends, business income and so on. And while you have to pay back the amount you borrowed, plus interest, your account gets to keep any investment earnings generated with the borrowed money.
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Life events. Life priorities. Investor education. Tools and calculators. Contact us. Open an account with Merrill. Investing in the margins Share:. Text size: aA aA aA. We've all heard of the lucky investor who made a killing by not only buying Apple when it was cheap, but by buying it on margin, effectively doubling his already hefty returns.
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