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When it comes to trading, it is always misunderstood that you should have the cash to trade, i.e, to buy stocks. However, there are a few facilities that allow you to buy and hold the position for a certain period with your availed margin. One such feature is the NRML trading (Normal Margin orders). After activating the NRML trading, you do not require an immediate cash balance in your trading wallet to hold the position of your desired stocks. You can use the margin, buy and hold the position of your securities for a particular period and repay within the time frame.
How does it work?
Let us assume you have Rs.50,000 in your cash segment and looking to buy 200 ABC shares worth Rs.1,00,000. In this case, if you do not have margin funding, you can buy only 100 shares approximately for Rs.50,000. On the other hand, if you have availed of NRML trading, you get 50% of the shares price as a margin. This extra margin allows you to buy the same 200 shares with Rs.50,000 from your cash segment and Rs.50,000 from the margin funding.
How to repay this 50% margin fund, and will I get the shares to my trading account once I buy?
Well answer to this question is simple. You can avail the margin funding and hold the position of the stocks post-purchase, which means, the purchased stocks are held as collateral for the margin. Once you repay this margin within or on the settlement date, you get the shares to your trading account. Here, your broker firm charges interest daily until you repay the availed margin amount. This interest varies with the broker and ranges from 14-18%p.a. If you hold the balance in your cash segment, this interest is debited from the available balance.
What if you fail to repay the margin amount within the specified settlement date?
Simple, you can square off the shares by yourself failing to repay the margin. If not, your broker (brokerage firm with whom you maintain a trading account) will cancel it after the settlement date.
How is the settlement date calculated?
The settlement date is fixed by your brokerage company. Some offer T+5 days and a few offer T+5+2 days. T is the date on which you perform the transaction (purchasing stock). The dates are here calculated based on the trading days.
What if you get a dividend for the shares that you bought with a margin facility?
Only the shares are held in as the collateral. Just like any other dividends, these will also be credited to your bank account that is linked to your trading account.
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