Make money in the financial and commodity market. So, what does one need? One needs to have money, of course, and other than that he needs a dependable broker. This is the intermediary who connects him to the commodity market to do the trades and you also should know about the rules for trading is very important.
Choose the Broker
You have a choice when it comes to brokers. The first one is the regular broker who charges a percentage of the transaction amount. The second one is the discount broker who takes a flat fee, usually Rs 15 – Rs 25 per transaction. You can see how you lose a big amount by choosing the regular broker. You need a Low brokerage trading account. For instance, if you trade Rs 20,000 in the market, you must pay the broker his 0.5%, which works out to Rs 100. If your transaction is bigger, you must pay a bigger amount.
Using the Margin
You can buy stocks and securities on margin. This increases your profit potential but the risk also increases. When you buy on margin, you are borrowing money from your broker. You also use your own money to buy the stock. The amount of money you put up will the initial margin requirement. The amount of money you can borrow and invest is regulated by the trade regulating bodies. However, in some instances, the brokers may impose their own restrictions. If you want to trade on margin, you must sign an agreement with your broker.
Once this is done, open an account and deposit money into the account. The amount of money you must have in the account varies according to the exchange, the broker, and other related things. The market regulatory board will insist that the broker maintains a margin of 50% but the broker might set the margin at 65%.
Calculate Your Margin
First, get the total purchase price of the stock you want to trade with. Multiply the number of shares you want to buy with the share price. Let us suppose you want to buy 100 shares of stock that have a share value of Rs 40 each. Then, you need to invest Rs 4000. Now, suppose the margin requirement is 65% you must multiply the purchase price by 65%. This will give you the initial margin requirement as Rs 2600.
Designation of Traders
Intraday trading, otherwise called day trading, refers to trades that are opened and closed in a single session of the market. The trading rules for those who hold the stock for more than one day will be different. The trade regulatory authorities will designate the account of a trader as a pattern day trader is he executes a minimum of four stock trades on five consecutive days. After the designation is done, the trader has the pattern day trading account and must follow the rules for the same.
Use of Leverage
The leverage allows the trader to use more money than he actually has on him. In a regular margin account, this leverage remains at two. That means, the trader whatever he deposited plus his own money to do the trade. Those who come under the pattern day trade rules will have up to four times the amount to make the trade.