There are several companies out there in the market. They will be either public companies or private companies. A public company is the one whose ownership is shared among the masses via share. The company will be listed in the stock markets, and anyone can buy shares of it to become a shareholder for the company. The shareholder with a share of above 50 percent will act as the decision-maker for the company. A private company will not be there in the stock market, and the ownership will be with the founding members, or the persons allotted to control the company. The process of buying and selling stocks and shares of companies in the stock market is known as stock trading. There will be a broker to help you with the trade. These brokers can be companies, individuals, software, etc. The mode of trading is changing with time. There are various options for buying and selling stocks. Margin (孖展) transactions are one of those ways in which you can buy stocks that are out of your budget with the help of financial assistance from the broker itself. In this article, let us discuss the process of margin transactions in detail.
Margin transactions are also known as Financing transactions. This process allows you to buy stocks more than you can afford to. The broker will lend you the money to buy stocks, and you would have to pay only a fraction of the amount upfront. Once the session is over, you should repay the amount brought from the broker. It is a process of making quick money, and investors go for it when they need some greater profits in a short period with lesser investment. But the process involves a risk of losing more money. Although it will be helpful if you succeed in your session, if you cannot guess the stock movement correctly and a loss incurred, you would still need to repay the broker. So, your percentage of loss will be higher than the actual loss. In the process of margin transactions, you will either get a better profit or a greater loss.
Process of Margin transactions
To do margin transactions, you should open a margin account. You can ask your broker to open a margin account. There will be an initial payment known as the initial margin (IM) that you have to pay to the broker. Then you can start buying and selling stocks. If you have an investment of $1000 and you are raising $1000 from the broker, you can buy stocks for $2000 total. If the stock price increase by 10%, your value will be $2200. If you repay the broker with $1000 you bought earlier, you will have a profit of $200. It will be a 20% profit. But if the price value decrease by 10%, you would still repay the broker with the same $1000, so that you will lose 20% of your investment.