Complete Margin Trading Explained: Advantages & Disadvantages

Margin trading requires you to take a loan from a broker for buying stocks. The margin requirement is like a loan and interest is to be paid. Margin trading enhances the purchasing power of the investor.  You can increase your profit-earning potential using margin trading. Margin trading is advisable for investors who want to take advantage of the price fluctuations in the stock.


If you wish to start margin trading, you need to place an application with the broker. An investor must always keep a minimum margin with the broker. The broker can square off a position if you do not maintain a minimum balance or meet the margin call. Margin trading helps you to capitalise on leverage and amplify your trading profits. It provides flexibility to the investor in terms of tenure. Only authorised brokers are allowed to trade in margins as per the Securities and Exchange Board of India (SEBI).


Positions against the margin can be created either with the help of cash or by keeping the stocks as collateral. It is advisable to pay off the loan at the earliest so that interest accumulation is less. Squaring off each trade is essential in every session to ensure the margin is available again. 

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