Margin trading can help you gain in a bullish mkt

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SummaryInvestors buy shares by investing their money up front. Margin trading is borrowing money from a broking house to purchase shares.

ratio of margin debt to equity of at least 50% (which will vary depending on the broking house). If the debt portion exceeds the prescribed limit, the investor will be required to restore that ratio by depositing either more stock or cash into the brokerage account.

The facility of margin trading is available for Group 1 securities and those that are offered in the initial public offers and meet the conditions for inclusion in the derivatives segment of the stock exchanges.

Generally, buying on margin is good in a bull market. Of course, in a bear market, too, an investor can make profit if he is able to predict which share prices are going to come down. However, if one is new to investing and the stock market, it is advisable not to engage in margin trading.

* The writer is an associate professor in finance and accounting in IIM Shillong

Borrowing for a profit

* When an investor buys shares on margin, he must maintain a balanced ratio of margin debt to equity of at least 50% (which varies with broking houses)

* If the debt portion exceeds the prescribed limit, the investor will be required to restore that ratio by depositing either more stock or cash into the brokerage account

* The facility of margin trading is available for Group 1 securities and those that are offered in IPOs and meet the conditions for inclusion in the derivatives segment of the stock exchanges

* Generally, buying on margin is good in a bull market. In a bear market too, an investor can make profit if he is able to predict which share prices are going to come down

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