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Trading in the stock market requires capital, a solid strategy, and proper risk management. Intraday margin trading can be useful for those who prefer short term trades. It allows traders to take larger positions than their available capital by borrowing funds from the broker.
However, margin trading also comes with strict rules. In 2020, SEBI introduced new guidelines that require intraday traders to maintain a minimum margin of 20% of the transaction value. This move was aimed at reducing excessive risk and promoting safer trading practices.
In this blog, we’ll explain what intraday margin trading is, the current margin rules by SEBI, its pros and cons and who can participate in it.
What is Intraday Margin?
Intraday margin is a facility offered by brokers that allows traders to borrow funds and take larger positions within a single trading day. It helps increase buying power, meaning traders can trade more than what their actual capital would normally allow. This strategy is used by active traders to maximise returns from short term market movements.
Let’s understand this with a simple calculation. Suppose you have ₹50,000 in your trading account. If your broker offers 5x margin, you can take trades worth ₹2,50,000. This gives you more exposure to the market using limited capital.
Intraday Margin Example:
Suppose a stock is trading at ₹500 per share. To buy 100 shares, you would need ₹50,000. But with a 5x margin, you only need ₹10,000 as margin money to place the trade. The rest is funded by the broker for the day.
SEBI New Rules for Intraday Margin: What Traders Must Know?
Since September 2021, SEBI has enforced stricter intraday margin rules. These rules were introduced to control excessive leverage, reduce risk in the system and bring more transparency to intraday trading.
Here are the key changes every trader should be aware of:
- Peak Margin Reporting: Brokers are now required to record and report the peak margin used by a trader, measured four times throughout the trading day. For example, if your account balance is ₹50,000 and you take a position worth ₹2,50,000 at any point, the peak margin used is ₹2,00,000. This peak usage is reported to the exchanges.
- Mandatory Initial Margin: Traders must deposit upfront margin either in cash or approved securities before placing any intraday trade.
- Penalty for Margin Shortfall: If the available margin falls short of the required amount both the trader and broker are penalized. Penalty can range between 0.5% and 1% per day on the shortfall and can increase if repeated within the same month. For example, if you’re short by ₹2,000, a daily penalty applies until the gap is covered.
- Reduced Intraday Leverage: Earlier, brokers could offer leverage up to 40–50x on intraday trades. Post September 2021, this is capped at 5x, limiting exposure and reducing the risk of large scale defaults.
Who is Eligible for Intraday Margin?
To trade using intraday margin, you must meet certain eligibility criteria set by your stockbroker and regulatory authorities. Here’s what you need:
- Trading Account: You must have a trading account that supports intraday margin facilities.
- Minimum Balance: Most brokers require you to maintain a minimum account balance to qualify.
- Trading Experience: Brokers may evaluate your past trading activity or experience before offering margin.
- Risk Profile: Your risk tolerance and ability to manage potential losses are assessed through a risk profiling process.
- Regulatory Compliance: You must comply with SEBI regulations and the internal risk policies of your broker.
- Income Proof (F&O Segment): If you plan to trade in futures and options using margin, proof of income is mandatory.
Advantages and Disadvantages of Intraday Margin
Here are some pros and cons of intraday margin that every intraday trader must know.
- Increased Buying Power: With leverage, you can take larger positions than your available capital allows. This can increase potential profits if trades go in your favor.
- More Trading Opportunities: Extra margin lets you diversify across multiple intraday trades, reducing dependency on a single stock.
- Profit from Small Movements: Intraday margin helps capitalize on short term price movements, potentially improving your daily returns.
- Higher Risk of Losses: Leverage works both ways. If the trade goes against you, your losses can exceed your initial investment.
- Margin Calls: If your account value drops below the required level, your broker may issue a margin call, forcing you to add funds or square off positions immediately.
- Additional Costs: Margin trading attracts extra charges including higher brokerage fees and interest on borrowed amounts.
- Stress and Emotional Decisions: Pressure of managing high risk trades can lead to impulsive decisions especially for beginners.
Final Words
Intraday margin trading can increase your profit but it also carries high risk. You need strong market knowledge, discipline and a solid risk management plan to use margins effectively. Like any trading strategy, it’s important to learn the basics, start with small amounts and avoid risking money you can’t afford to lose.
Frequently Asked Questions
Is intraday margin free?
No, it isn’t. Brokers usually charge interest on the borrowed amount along with higher brokerage fees.
Can I do intraday trading without margin?
Yes, you can. It's called cash intraday trading, where you trade using only the money available in your account.
What is a day trading margin call?
It’s a warning from your broker when your funds fall below the required margin. You’ll need to add money or exit trades to cover it.
What is intraday peak margin?
It’s the highest margin used during the day. Brokers must report it to SEBI to prevent excessive risk-taking.
Happy investing and thank you for reading!
Disclaimer:
This website content is only for educational purposes, not investment advice. Before making any investment, it’s important to do your own research and be fully informed. Investing in the stock market includes risks, and you should carefully read the Risk Disclosure documents before proceeding. Please remember that past performance doesn’t guarantee future results, and due to market fluctuations, your investment goals may not always be achieved.
