Intraday trading is a popular trading segment in the Indian stock market. But with the introduction of the SEBI new margin rules for intraday trading, a lot of traders were left in dismay. But the question is, is margin mandatory for intraday trading, and how to do intraday trading without margin.
The margin trading gave a lot of benefits to the traders but since the reduction of margin to a maximum of 5X, traders have to adapt to other options as well.
So, let us have a look at how you can make money in intraday trading irrespective of margin.
Before getting into the details of how to do intraday trading without margin, let us figure out if that is even possible. So the answer is YES! you can effectively day trade in the absence of margin.
If you are confused about what is margin in intraday trading, then to sum it up in simple words, it is similar to a bank loan.
In margin trading, a trader can effectively borrow some money from the stockbroker to purchase the desired securities. Just like you have to repay a bank loan, you also have to repay the margin availed.
But what is the benefit of trading using the margin facility? When you are trading using the margin facility, you get an opportunity to trade with an extra amount and thus you are exposed to larger profits.
Let us understand this with the help of an example.
Suppose you have a ₹50,000 trading amount and you want to purchase the stocks of ABC company. The current market price of the stock is ₹100.
With this amount, you can purchase 500 stocks of the same company. Now in the same trading session, the amount of the stock reached ₹120 per share.
So, you decided to square off all your positions. In this case, your profit will be of ₹10,000.
Now trading with a 10X margin. You will now get 10 times ₹50,000 that is ₹5,00,000 to trade. So instead of 500 stocks, you can now purchase 5000 stocks. And on squaring off at the same price as before, your profit will be ₹1,00,000.
So, did you see that how margin trading can benefit a trader? But after the reduction of margin to a maximum of 5X the scenario has changed.
If you are looking to trade without using the margin, there are certain reasons to support that.
So, as mentioned above, you need to maintain a base amount in your account. Now this amount is highly dependent on the volatility of the stock. A stockbroker takes the screenshot of your available funds at any random 4 times in a trading session.
If you availed the margin but failed to maintain the margin, then you will have to suffer a penalty. You will therefore get a margin call asking you to either square off your existing positions or add more funds.
Let’s take another example to understand this:
You have a ₹10,000 maintenance amount in your account and got ₹50,000 for your trading(5X margin). You went ahead and purchased the stocks of XYZ company for ₹50,000. There is now a reduction in the margin maintenance amount. You will not get a margin call.
It is therefore always better to trade with your own money. Higher margin leads to higher profits but also higher risks.
If someone is still figuring out how to do intraday trading, then margin trading can lead to more losses than profit.
Intraday trading is the buying and selling of shares on the same day. If someone select the right stocks for intraday trading, then the profits can be great. But as the increased volatility can be a bane, it can be a boon as well. Margin trading can increase the losses if the market is too volatile and not in your favour.
It certainly helps you to trade with higher capital but you can trade and earn profits without using the margin as well.
If you are also looking to start your trading journey, open free demat account today!