abhishreshthaa
Abhijeet S
EXAMPLE : SUPPOSE THAT IN THE PREVIOUS EG, INSTEAD OF ROCKETING UP BY 25%, THE SHARES FALL BY 25%.
NOW, YOUR INVESTMENT IS WORTH RS. 15000 (200 SHARES* 75)
NOW, YOU PAY BACK YOUR BROKER RS. 10000, & END UP WITH RS. 5000.
IT RESULTS IN A LOSS OF RS. 5000
THAT’S A 50% LOSS, WHICH OTHERWISE( IN A CASH TRANSACTION) WOULD HAVE BEEN A LOSS OF ONLY 25%.
FURTHER, INTEREST HAS TO BE PAID ON THE SUMS BORROWED. HENCE, ONE COULD ACTUALLY STAND TO LOSE MORE MONEY THAN ORIGINALLY INVESTED.
IN A CASH ACCOUNT, THERE IS ALWAYS A CHANCE THAT THE STOCK WILL REBOUND, IF THE PERFORMANCE OF THE COMPANY IMPROVES & SO YOU MAY WANT TO HOLD ON FOR THE RECOVERY.
HOWEVER, IN MARGIN TRADING, THERE IS NO SUCH CHOICE SINCE THE BROKER CAN EXERCISE THE MARGIN CALL ANYTIME.
NOW, YOUR INVESTMENT IS WORTH RS. 15000 (200 SHARES* 75)
NOW, YOU PAY BACK YOUR BROKER RS. 10000, & END UP WITH RS. 5000.
IT RESULTS IN A LOSS OF RS. 5000
THAT’S A 50% LOSS, WHICH OTHERWISE( IN A CASH TRANSACTION) WOULD HAVE BEEN A LOSS OF ONLY 25%.
FURTHER, INTEREST HAS TO BE PAID ON THE SUMS BORROWED. HENCE, ONE COULD ACTUALLY STAND TO LOSE MORE MONEY THAN ORIGINALLY INVESTED.
IN A CASH ACCOUNT, THERE IS ALWAYS A CHANCE THAT THE STOCK WILL REBOUND, IF THE PERFORMANCE OF THE COMPANY IMPROVES & SO YOU MAY WANT TO HOLD ON FOR THE RECOVERY.
HOWEVER, IN MARGIN TRADING, THERE IS NO SUCH CHOICE SINCE THE BROKER CAN EXERCISE THE MARGIN CALL ANYTIME.