Margin Facility Is The Name Of The Game

Thanks to the Internet, e-broking is unleashing a new class of investors in the securities arena in a big way. Most of the investors who place their orders on the Net are expected to take delivery (when buying) or receive payment (on selling) at the time of settlement. Now, what if the e-broking service provider gives you the facility of buying or selling at the beginning of a trading cycle without asking you to take delivery and, subsequently, cover your position? The answer to it lies in `Margin trading.'

This mechanism is being introduced by many e-broking outfits, albeit in a limited manner. Margin trading always existed in the traditional brick-and-mortar model but it's only now that it is being gradually introduced on the Net trading platform. The facility , at present, is being offered to select clients at the discretion of the service provider. But it is just a matter of time when most of the e-broking outfits decide to take the plunge and offer the facility to all their clients on the payment of deposit (margin) amount.

 

Simply speaking, margin trading allows an investor to place an order (buy or sell) through his service provider after depositing a certain percentage of the market exposure that he wishes to take.

In other words, it is leveraging on the margin deposit to trade in stocks and securities using the deposit as a collateral. If the price movement favours an investor, he will make a profit or deliver the shares on the settlement date.

However, if the price movement is adverse and a loss is incurred, the client is expected to make good the loss. It is for this reason that an investor has to deposit a certain percent in the margin account to be paid to the exchange.

equitytrade.com , an e-broking initiative of Modern securities, is among the first e-broking firm to offer this facility after charging 25 per cent margin from its clients. A person can put in a trade worth Rs 1 lakh by depositing Rs 25,000 in an account maintained by equitytrade.com.

Investsmartindia, a Net trading subsidiary of IL&FS, is also offering this facility to its clients on payment of 20-50 per cent of their total exposure. Stock Holding Corporation of India Ltd (SHCIL) is planning to offer the same to its demat-account holders within two weeks.

The facility will be offered to registered users on stockdirect.com, which is SHCIL's unique trading platform offering services of nearly 35 brokers and nine banks.

Says S Rengarajan, CEO, Investsmart India, "We are already offering stock alerts on mobile phones through our tie-up with Orange and, in the future, we expect major business to come via cellphones which is the next logical step for e-broking. Our clients should be able to place their orders while on the move and need not carry even a laptop with them."

It is estimated that only about 10 to 12 per cent of the trading volumes on the stock exchanges is delivery-based. This offers a tremendous oppurtunity for traders to put their deals through the Net , but only when the service provider offers margin trading to its client.

Says Madhabi Puri Buch, CEO, ICICIDirect, "Margin trading is the next logical step for us as it would give the convenience and flexibility to our clients. We intend to offer the facility as soon as possible after weighing all the options and rate at which we have to offer it "