To get to know about a margin calculator, you must first understand the concept of “margin” as it relates to trading and investment. Then you can easily use a tool, the margin calculator, to make your trades easy and convenient. In the sphere of finance, the margin is an amount of money, you could call collateral, that investors have to deposit with brokers. In the simplest terms, the margin covers the credit risk that lies with the investor and that which is posed for the broker.
Investors usually create what is known as “credit risk” if they borrow capital from their broker in order to purchase financial instruments, or borrow financial instruments so that they can sell them short. Investors also enter into derivatives contracts and have to have a margin to do so.
When investors purchase assets by letting brokers lend them balance amounts, this means that investors are “buying on margins”. Margin trading makes use of an online margin calculator in a big way. Margin trading represents the practice that investors undertake, of using funds borrowed from brokers, to trade in a financial asset. Usually, when you trade in equity, you must open a demat account with your broker. You can also open a margin account which is actually a typical brokerage account. From this account, an investor is able to use any current cash, or any securities as collateral for the loan taken from a broker. Leverage through a margin tends to amplify losses and gains. If a loss is incurred, a margin call might make your broker liquidate all your securities without your prior permission.
Buying securities and other assets on a margin lets you have some leverage over your trades, in relation to letting you purchase and sell securities. You can easily use a simple online tool, the margin calculator which helps you to compute your overall exposure in various segments such as intraday trading of stocks, futures and options contracts, commodity trading, currency trading and delivery. Margin calculators only apply to these particular trading transactions and the assets thereof, as these are the only assets in which you have the advantage of margin trading. If you wish to invest in other instruments, like any upcoming IPO, you cannot make use of margins to apply for an IPO a subscription.
With the aid of the online margin calculator, you can easily compute the margin that applies to any trade. Let’s say, you wish to trade with one of India’s premier online brokers, Motilal Oswal, you can get to know about how much margin funding you can get for a particular trade. If you have had to open a demat account to trade in stocks, you may wish to know how much capital you will require to buy a particular stock amount, and how many extra stocks you can buy using your margin. What helps you to do this? A margin calculator in which you have to enter a few fields, based on the stocks you wish to buy and the amounts you need for purchases. You can know the requirements before you make investments, and the corpus that is needed to create your portfolio. Before you trade, you should know what minimum amount you need in your trading account. Margin calculators can encourage the investment in stocks and other securities, and planned lucrative trading activity. To diversify your portfolio further, you can think of any upcoming IPO investment too.