Equity, as we know now, means buying a share/stake in a company.
If we buy equity in margin, it means that we pay only a partial amount for our exposure.
Let’s understand this with the help of an example:
If you buy 100 shares of a company at a price of 100/share, then the total exposure is of 10,000. Now if the margin requirement is 10%, then an investor only has to pay 1000 and can take a position. Now if there is a 10% appreciation in the price of a stock and it moves to 110, then you make a profit of 1000, which is double of your money.
Hence, an investor ends up making double of his investment even when the share has moved by only 10%.
This is the power of margin investing.
However, this being said, the risk is equally high. If the share moves down by 10%, then the investor loses all his capital.
Hence, when done with proper knowledge and precision, it can reap in huge benefits to investors.
The margin trade can be taken in F&O, Futures and Options, also known as derivatives.
This facility is also provided by brokers to their clients and is also called margin funding.