Margin Trading Tips & Strategies For Beginners

Published on: 28 June 2022 Last Updated on: 05 July 2022

You can profit from asset price fluctuations that you wouldn’t be able to afford otherwise by using margin trading. Margin trading can increase your profits but also increase the risk and size of any potential losses. But, how can you make it work for you?

Are you trying to decode the actual margin of trading and increase your potential wins? This article will go in-depth on margin trading tips and strategies you can apply to your existing strategy to increase your potential wins and reduce your losses.

What Is Margin Trading?

Margin trading is a typical type of asset trading that involves borrowing additional funds from a third party. As a result, traders who use margin accounts have more capital at their disposal.

As a result, individual traders are leveraging their positions. In essence, the margin of the trading strengthens trading positions, allowing traders to profit more from successful trades.

Traders should be aware of two different types of margins. Your required margin is the amount of money you’ll need to open a position. It is determined by the amount of leverage used, which is expressed as a leverage ratio.

There are limits on how much your broker can lend you in a margin trade, which is determined by the actual size of your trading account or your overall maintenance margin.
These all are the funds that you’ll need in the right account to cover the possibility of a loss.
By law, retail accounts are limited to maximum leverage of 30:1 to 2:1, depending on the asset type.
To reduce risk, brokers need to maintain a suitable overall margin.
If you don’t have enough money to cover up the potential losses, you could be put on a margin call, in which case your broker will ask you to either top up your account or close your losing trades.
You may face a margin closeout if your trading position continues to deteriorate.

Margin Trading Strategies

You are now familiar with margin trading and possibly how it works. How can you use it in your long and short positions? What are the long and short positions of trading economics?

● Long Positions

A long position is one in which the trader expects the price to rise. Traders take a long position when they believe the market will rise in value. They bet that the price of a particular asset or the entire market will continue to rise in this manner. They profit from the increase in value and sell at a later date or time.

You can magnify your wins by using leverage on the positions if your bias is that the current market move is up.

● Short Position

You’re betting that the price will fall when you take a short position. In more detail, traders take a short position when they believe the market will decline. Put another way, you’re betting against an asset rather than for it.

Just as you did on your long position, you can magnify your positions to significantly increase your wins if the current position hits your targeted point.

As a trader, you have the liberty to trade only with your money. That means it is not mandatory to leverage your positions every time you trade a commodity.

Tips On Margin Trading Strategies

You should always strive to be strategic as a trader. Below are some strategies you can use to stay on top of your game.

Overview:

Keep Your Cool
Start Slow
Maintain A 100% Or Greater Maintenance Margin
Don’t Rush Into Trades
Set Up Limit Orders
Monitor Your Open Positions
Use Stop-Loss Orders

1. Keep Your Cool

It is easy to be all over the place as a beginner trader. However, it’s critical to remain rational when it comes to margin trading. Do not engage in any trades for which you are not fully prepared.

Instead of relying on your emotions and adrenaline, use technical analysis and trading indicators. Alternatively, always make sure you have a plan and are trading the project; the money will come.

2. Start Slow

Margin trading has a much higher potential for profit than regular trading. Higher profits, however, come with a higher risk.

So before going all in, consider starting with lower leverage, such as 1x or 2x. This method reduces the likelihood of automatic liquidation.

3. Maintain A 100% Or Greater Maintenance Margin

Keep in mind that many traders will be going to start with low funds in their margin accounts, which can sometimes exaggerate the loss amount. If you keep the bare minimum in your account, margin calls are more likely. Maintain a small buffer in your account to ensure it can withstand minor market fluctuations.

You don’t want to end up in a situation where your broker is forced to sell your holdings at a loss with no chance of recouping your investment. You should ensure your account is adequately funded because no one wants their positions to be automatically closed.

4. Don’t Rush Into Trades

Instead of being spontaneous, plan your trades ahead of time and trade your plan. Also, when margin trading, try to be patient.

You will gain an advantage if you calculate the proper entry time—especially when compared to diving in with both feet.

5. Set Up Limit Orders

Limit orders allow you to buy or sell assets at a set price or a better price. For the case of buying the limited orders, the order will only be filled within the limited price or a lower price.

On the other side, selling the limited orders will only be filled at a fixed price or a higher price. So when it comes to margin trading, limited orders can help you reduce risk. It feels like you have complete control of your trades! Yeah, that’s right.

6. Monitor Your Open Positions

Keep an eye on your trades and close them if they go against you, or set up automatic stop orders to close positions early. Using automatic stop orders is much more effective.

7. Use Stop-Loss Orders

Stop losses automate your trading, and take the emotion out of your decision-making process.

For example, stop orders can help you avoid a margin call or a margin closeout by limiting your losses during a market sell-off.

Wrapping It Up:

Margin trading helps you grow your account and finances significantly only when traded strategically. If you like to earn money with margin trading, then along with the investments, you have to automate the whole system. As with automated systems, you can increase your profit-making chances.

Additionals:

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Calculate your Term Loan with the Help of Online Calculator

Any loan that comes with a fixed period for repayment of the debt is known as a term loan. The repayment tenor for a loan can range between 1 year and 20 years, depending on its nature. Similarly, interest rates for term credit can be either fixed or floating. Regardless of the loan type, you must perform an extensive calculation before availing term loans. Using online calculators Manual calculation of interest was a common practice before the advent of special online calculators. While you can still follow the manual route, most people today rely on loan calculators available on the internet for these calculations. Access these term loan calculators on the Internet. In the specified fields, enter the loan principal, rate of interest and tenor. After verifying these details, click on calculate. The tool should show your EMIs for the loan along with the total interest payable. It can help you determine the perfect loan quantum, especially if you operate a company and are seeking a business loan. Here are some advantages of using such a calculator when opting for a term loan – Quick calculations Manual calculations require you to follow a complex formula when determining the interest payable and instalments for a loan. This can be time-consuming and lead to inaccuracies. Term loan calculators offer a better alternative, ensuring speedy calculations every time. It barely takes any time to understand how to use an EMI calculator, making the entire process more streamlined. No errors When you calculate manually, there is always some room for mistakes. When dealing with such large sums of money, even a small error can have a great impact on the outcome. A term loan calculator, on the other hand, almost nullifies this risk of making mistakes. You can use a business loan EMI calculator to make a proper assessment. Essential for loan comparisons Many NBFCs offer term loans to consumers in India. Some of these companies offer credit at lower rates of interest when compared to others. Therefore, to ensure the most profitable deal, you need to compare the available loan products in the market. Several people feel discouraged to undertake such comparisons when performing calculations manually. However, the presence of EMI calculators can greatly simplify this process, allowing you to pick the loan option that suits your individual needs. Taking an informed decision While financers often entice you to avail loans, you need to verify whether you are comfortable with the resulting EMIs for the credit. Calculations can help you understand your exact monthly payments for a particular sum of credit. Therefore, you are free to make the final call based on the results of these calculations. Whether you are looking to finance your growing business or fund a wedding, using a term loan calculator is vital in every case. While there are several types of term loan, the calculator can effectively deliver accurate results in each instance. If you are unsure about interest rates or tenor options for a loan, verify the information online through the lender’s website. Ensure you choose a reputed financing company for term loans to avoid loan repayment hassle or other issues in the future. You can choose NBFCs like Bajaj Finserv, which provide financing up to Rs.30 lakh with flexible repayment tenors. Do not take a chance when availing loans. Use the calculators to determine the perfect loan amount and EMI for you before loan application. Read Also: Using Short-Term Loans To Help Rebuild Your Credit Score 3 Factors That Determine Your Personal Loan Interest Rate 5 Steps To Take If Your Personal Loan Application Is Rejected

Tips for Breaking Into Finance and Banking

Many people with an interest in money find it quite rewarding (and profitable) to pursue a career in finance and banking. But not everyone gets there on the same path. For one thing, there are many careers in the industry, such as management, financial advising, auditing, and lending. So, depending on what field you want to pursue and where you hope to work, your career path may look a lot different than someone else’s. With that in mind, there are a few tips you need to know to help you break into almost any field within this sector. Majors are less important than you think: Many college students get hung up on narrowing down their major in college to match the specific career they currently want. But the truth is that while you do need a degree, the major can vary quite a bit. In fact, many people start out with a major in accounting and end up with economics degree jobs. Or they might start with a major in finance and end up in economics. Some people even break into the field with unrelated degrees, like psychology or communication. The point is that most managers in the money field know that the skills and knowledge you obtain from any area in business can translate to the others. You might start at the bottom: Not all fields are the same, but certain ones (such as banking) rely more on seniority than your level of education. In fact, many people in the banking industry started out years ago with very little education and worked their way up. Other fields also require working your way up, but they may not require you to start in the lowest positions available. Some sectors in finance and banking will allow you to work your way up very quickly or even start out in management or mid-management positions. Just remember to stay humble, learn all you can, and work hard on even the small jobs you’re given. Your resume needs to stand out: While this is true in any industry, employers in the finance and banking industry are looking for specific skills. And depending on where you live and work, your resume could find itself at the bottom of a very big pile. Aside from a simple, professional format, you need to use the right lingo to get your resume seen. Each industry has its own set of particular skill sets that make someone a quality candidate. And banking and finance are no different. In fact, because the applicant pool is so educationally diverse, your skill set may be the only thing that matters. The ability to communicate well, for example, is at the top of the list. Hiring managers also look for analytical ability, problem-solving skills, and capacity for innovation. Networking should be your priority: Networking isn’t just for business professionals looking for more client leads. It’s also one of the most effective ways to land your first job. About 70 percent of job seekers are hired by companies with which they have connections. And networking doesn’t have to be as hard as it sounds: it’s simply connecting with people in the industry. You can do this by reaching out on social media to individuals or groups in the field you want to work in. You can amp up your LinkedIn profile to appear as an active job-seeker in the industry. You can take advantage of all the college events where professionals in your degree field will be meeting up. And you can simply ask people you know about their careers and connections in banking and finance. You’ll be surprised at how willing most people are to help you out. Read Also: 3 Must Know Accounting Tips To Help You Finance Correctly 8 Family Friendly Careers That Offer Great Pay And Work-Life Balance

Know the Applicable Stamp Duty when Gifting an Asset

Ravi Krishnan was retiring from central government service. At this time, he decided to gift his three-bedroom flat in Navi Mumbai to his son Akaash. Krishnan is now 60 years old and would relocate to his native Bengaluru from Mumbai. Widower Krishnan has planned for his golden years well. He can easily manage with a pension of Rs.2.5 lakh a year in Bengaluru where he owns a house. While Krishnan was formally transferring the rights of his Mumbai flat to his son, he came to know that there are certain tax implications. He got down to assess what needs to be taken care of with regard to stamp duty gift deed. It turns out that the transfer of any immovable property, even from father to son, is considered as a gift as per the existing laws. Stamp Duty on Gifts Stamp duty is the tax levied on a property which is being sold or transferred. Stamp duty varies from state to state. It is in the range of 3–7% of the value of the property. The Transfer of Property Act mandates that the gifted property be registered as a ‘gift deed’. This should be duly signed by the person who is gifting it. It also needs to be signed in front of two witnesses. A gift deed is a legal document that endorses the transfer of property from the donor to the receiver. There is no exchange of money in this case. The rate of stamp duty, however, is the same as in the regular sale of the property. However, some states are lenient in terms of stamp duty gift deed when it involves gifting of property between close relatives. You can make use of a free stamp duty calculator available on various real estate aggregator websites. Then you will know the exact rate applicable in the case of your gift deed property. Components of a Gift Deed Details of the property that is being given as a gift Details of the donor such as name, father’s name, Aadhaar number, address, etc. Details of the receiver such as name, father’s name, Aadhaar number, address, etc. The date and place where the gift deed is being signed Signature and details of two witnesses who were present when the gift deed was executed Relationship between the donor and the receiver Income Tax on Property Gifts According to the Income Tax Act, 1961, you are not liable to pay tax on gifts received of up to Rs.50,000 in a year. What if the value of the gifts exceeds Rs.50,000? Then a gift tax is imposed on the receiver. The Income Tax Department has taken into consideration that movable and immovable assets change hands between close relatives. So, it has exempted the receiver from paying any tax for a property received as a gift. What is heartening is that there is no cap on the price of the property. However, the donor of such a gift has to be from a list prepared by the Income Tax Department. Which donors are exempt from taxes? That includes parents, spouse, siblings, siblings of the spouse, and direct ascendants and descendants of the donor and their spouse. As a receiver of the property as a gift, you would only need to pay income tax when you decide to sell it. The Income Tax Department will treat the proceeds from the sale of the property as an income. You are liable to pay taxes on such an income. The rate of the taxes, however, will be decided on your period of holding. Short-term capital gains will apply to holdings below 36 months. If the holding period is beyond 36 months, you will have to pay long-term capital gains tax of 20%. But in this case, you will also be entitled to indexation benefits. Conclusion The gifting of immovable assets attracts taxes. One has to pay stamp duty and registration charges when the transfer of rights of a property takes place. Stamp duty varies from state to state but is essential in formalizing the gift you have received. For property received as a gift, you will not be required to pay any taxes unless you decide to sell it. Read Also: 5 Gorgeous Hairstyles For A Perfect Date Night

Margin Trading Tips & Strategies For Beginners

What Is Margin Trading?