Margin Trading in Long Position and Short Position
Margin Trading:
Margin Trading refers to the practice by which one can purchase share in the higher amount than the money investor already have and it also helps to sell the security which is not owned by the investor. Margin trading, therefore, is used in both long & short position. Long position refers to buying of security own share in an expectation of drastically or dramatically price increase. But short position refers to selling of own security or short selling of others security, which are not owned by the investor (i.e. short seller). In order to use margin trading, investor opens margin account in the brokerage house and deposits minimum initial down payment as required by that brokerage house and then purchase or sell the security.
Long position and Margin Trading:
Long position refers to buying of securities for oneself with the expectation of price increase. Therefore long position holder will have unlimited profit with limited loss (i.e. not more than 100%). Therefore return for long position holder is summation of capital gain and principal repayment (dividend and interest)
HPR for long position holder = Ep- Bp +Dt P1-P0+Dt Bp P0
Long Position under Margin trading:
Long position is held when one expects that price of the security will dramatically increase. For that, investor opens margin account in brokerage house and deposits minimum initial down payment as per the initial margin. For e.g. if brokerage firm has the provision of 50% for initial margin , an investor who wants to purchase the security of Rs. 1 lakh has to deposit 0.5×100,000=Rs. 50,000 as initial margin . In case of margin trading change in price or fluctuation in price may change the holding of investor in the brokerage house account that is computed by actual margin. When investor clears the entire due amount i.e. provided by brokerage house (loan) with its interest, s/he will have all his/her securities. Under margin trading
Margin Trading refers to the practice by which one can purchase share in the higher amount than the money investor already have and it also helps to sell the security which is not owned by the investor. Margin trading, therefore, is used in both long & short position. Long position refers to buying of security own share in an expectation of drastically or dramatically price increase. But short position refers to selling of own security or short selling of others security, which are not owned by the investor (i.e. short seller). In order to use margin trading, investor opens margin account in the brokerage house and deposits minimum initial down payment as required by that brokerage house and then purchase or sell the security.
Long position and Margin Trading:
Long position refers to buying of securities for oneself with the expectation of price increase. Therefore long position holder will have unlimited profit with limited loss (i.e. not more than 100%). Therefore return for long position holder is summation of capital gain and principal repayment (dividend and interest)
HPR for long position holder = Ep- Bp +Dt P1-P0+Dt Bp P0
Long Position under Margin trading:
Long position is held when one expects that price of the security will dramatically increase. For that, investor opens margin account in brokerage house and deposits minimum initial down payment as per the initial margin. For e.g. if brokerage firm has the provision of 50% for initial margin , an investor who wants to purchase the security of Rs. 1 lakh has to deposit 0.5×100,000=Rs. 50,000 as initial margin . In case of margin trading change in price or fluctuation in price may change the holding of investor in the brokerage house account that is computed by actual margin. When investor clears the entire due amount i.e. provided by brokerage house (loan) with its interest, s/he will have all his/her securities. Under margin trading