Introduction
Beginners who want to build wealth from the stock market hesitate to take the first step towards stock market trading because the fear of losing money stops them from entering into it.
Stock Trading as the name suggests is a trading method where people are involved in the transaction of shares of different companies in the stock market.
You may feel surprised to know that investing in the stock market with limited funds actually helps you double your wealth.
Trading stocks can seem challenging, especially if you have limited funds. However, with the right strategies and tools, even small investors can maximize their potential returns. One such tool is margin trading. Margin trading allows you to borrow money from your broker to buy more stocks than you could with just your available cash. This blog will guide you on how to trade stocks with limited funds using the margin trading facility, providing you with tips and tricks to get started.
A small investment with a regular amount will give you a wide experience of trading in the stock market. You only need to take care of a few things:
1) Set a Goal
An investment whether it is small or big has a specific reason to invest. Hence, many stock analysts advise you to set a goal before getting into the stock market as, without a clear objective, one can never achieve desired wealth.
Secondly, the goal of achieving outstanding returns, helps you decide the type, tenure and risk appetite. If you are a beginner, it is suggested to invest in the long run. This is because long term investment gives you ample opportunity to earn knowledge of the stock market. Also, setting a goal lowers the chances of investment errors.
Equity trading investment gives you a steady return if you invest in the stocks for the long term.
2) Control Your Emotions
Excessive emotions can harm your investment amount. Hence it is suggested to control your emotions while doing stock trading. Positive stock trading returns make people happy, however, negative returns like losses make people unhappy and that’s why many people stop investing.
3) Focus on the Fundamentals
Successful investments can be done only if investors have an in-depth understanding of the stock market. You can invest and earn a potential return from the stock market only if you focus on the fundamentals of the stock market and keep a track of every stock market movement. You can do this by doing proper stock market research. Having adequate knowledge of the stock market can mitigate your stock market risks.
4) Diversification
One of the best investment strategies to mitigate the risks is diversification. It allows investors to divide the investment amount into different investment categories along with their risks. Diversification of the money into different stocks will help you balance your portfolio as if one stock underperforms, the other performs well.
Best Way to Trade Without the Fear of Limited Funds
Margin Trading
Margin trading provides you with a way to purchase stocks that you can’t afford. Here, you need to borrow some amount of money from the stockbroker. In margin trading, the margin is being paid in both cash and in shares.
It is a prominent feature in stock trading as it allows investors to take larger portions and uplift their returns to another level. Here, the stockbroker plays a pivotal role as it funds your margin trading transactions.
In other words:
Margin trading involves borrowing money from your broker to purchase stocks. Here's how it works:
- Leverage: Margin trading provides leverage, meaning you can control a larger amount of stock than you could with your own money. For example, if you have ₹10,000 and your broker offers 2:1 leverage, you can buy ₹20,000 worth of stocks.
- Interest: You pay interest on the borrowed amount. This interest is charged by your broker.
Set a Clear Goal
Before you begin margin trading, set a clear financial goal. Ask yourself why you want to use margin trading. Are you looking to increase your returns over a short period, or are you investing for long-term growth? Having a goal helps you stay focused and make smart decisions.
Educate Yourself
Understanding the basics of margin trading is crucial. Learn about the following:
- Initial Margin: The amount of money you need to deposit to start margin trading.
- Maintenance Margin: The minimum account balance you must maintain. If your account balance falls below this, you'll get a margin call from your broker asking you to deposit more funds.
- Margin Call: A demand from your broker to deposit additional money or securities into your margin account when it falls below the maintenance margin.
Start Small
Begin with a small amount that you can afford to lose. Margin trading amplifies both gains and losses, so it's important to start cautiously. This way, you can learn and make mistakes without significant financial impact.
Choose the Right Broker
Select a brokerage firm that offers favorable margin trading terms. Look for brokers with:
- Low Interest Rates: Since you'll be paying interest on the borrowed amount, lower rates mean lower costs. Swastika Investmart offers competitive interest rates, making margin trading more affordable for you.
- Educational Resources: Brokers that provide tutorials, articles, and support can help you understand margin trading better. Swastika Investmart excels in this area, offering a wealth of educational and personalized support to ensure you make best trading decisions.
By choosing Swastika Investmart, you can benefit from low costs and exceptional resources, setting you on the path to successful margin trading.
Control Your Emotions
The stock market can be unpredictable, and prices can fluctuate significantly. Stay calm and avoid letting emotions drive your investment decisions. Stick to your strategy and remain focused on your long-term goals.
Monitor Your Investments
Regularly review your investment portfolio to ensure it aligns with your goals. Keep track of the performance of your stocks and make adjustments if necessary. However, avoid checking your portfolio too frequently, as short-term fluctuations can be misleading.
Be Aware of Risks
Margin trading comes with significant risks. Here are a few to keep in mind:
- Magnified Losses: While margin trading can amplify returns, it can also magnify losses. You can end up losing more money than your initial investment.
- Margin Calls: If your account balance falls below the maintenance margin, you'll need to deposit additional funds to avoid your broker selling your securities at a loss.
- Interest Costs: The interest on the borrowed amount can add up, especially if you hold the stocks for a long time. Ensure that the potential returns outweigh these costs.
Best Practices for Margin Trading
- Invest Wisely: Be cautious and ensure you have enough funds to cover potential losses.
- Borrow Less Than the Allowed Limit: Start with a smaller amount and increase your borrowing gradually as you become more comfortable with margin trading.
- Stay Informed: Keep up with market trends and news that may affect your investments.
The Process to Start Margin Trading.
The first and foremost step towards margin trading is to place a request to the stockbroker so that it can open a margin trading facility account. After opening the margin trading facility account, the stockbroker maintains a minimum balance which is called minimum margin.
Before getting started into a trade, investors are required to deposit a fixed per cent of the whole traded amount and the rest of the amount will be funded by the stockbroker.
Please note that the interest rate is charged by the stock broker.
The margin can be settled later when all the positions are squared off.
In margin trading, the profit can be counted only if you earn a profit that is higher than the margin, otherwise, you will suffer from a huge loss.
Takeaway
The amount of money cannot act as a limitation for investing in the stock market. A strong goal with the right decision can help you achieve great wealth. You are only required to Open Demat Account with a reputed brokerage firm like Swastika and you are ready to go. With Swastika’s Demat account, you can start an investment journey with a little money.
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