Trading Styles¶
Margin Trading¶
Allows investors to leverage positions
A margin account provides you the resources to buy more quantities of a stock than you can afford at any point of time. For this purpose, the broker would lend the money to buy shares and keep them as collateral.
You need to maintain
- Initial margin
- Maintenance margin
Margin calls occur when an investor's equity falls below a certain threshold, and the broker requires the investor to deposit more funds into their account.
Short Selling¶
Trader borrows shares from a broker and immediately sells them with the expectation that the share price will fall shortly after. If it does, the trader can buy the shares back at the lower price, return them to the broker, and keep the difference, minus any loan interest, as profit
Being short in an asset means investing in such a way that the investor will profit if the value of the asset falls. This is the opposite of a more conventional "long" position, where the investor will profit if the value of the asset rises
It is riskier than going “long”
| Profit Bound | Loss Bound | |
|---|---|---|
| Long | Unlimited | Limited: Cost of stock |
| Short | Limited: Cost of stock | Unlimited |
Security Lending and Borrowing Scheme – 1997 (SLB):
- SLB is a scheme that has been launched to enable the settlement of securities sold short.
- SLB enables lending of idle securities by the investors through the clearing corporation/clearing house of stock exchanges to earn a return through the same.
- Securities in the F&O segment are eligible for SLB
Day Trading¶
Practice of buying and selling financial instruments within the same trading day, such that all positions are usually closed before the market close for the trading day
Square-off position intra-day
Institutional traders are not permitted to do day trading in India