What Is Margin Trading?

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Margin trading in stock market refers to buying/selling of securities(shares) by borrowing money from your broker. This is very much similar to taking loan for short period of time.  Let us understand this with a simple example:

Suppose you want to buy shares of tata motors currently trading at Rs.80. You have 1000 rupees in your trading account , how many shares you can buy with this money?

80*12=960, so approx you can buy 12 shares, although with this low quantity, the profit you will earn if the shares prices move 1 rupee up and down is only 12. This does not look attractive at all. That is why the brokers would provide you margin to trade with larger quantity. So they will give you 10 to 20 times margin(may be more), now multiply your initial investment 1000*10 or 20, you will have much more money to buy the stock and with more quantity. Now the profit per share will be more as the quantity got increased.

Sounds attractive now, as your 1000 becomes 20,000 and with that you can buy at least 240 shares in case of tata motors, and per 1 ruppess movement will give you 240 bucks. Take it as an extra power given to you, now its up to you to decide whether you want to use it or not.