The increasing application of technology has made the process of stock trading safer, more accessible, and highly transparent.
Not only can you open a trading account and a demat account online and start your investments in the market, but you can also utilise tools such a margin calculator to estimate the margin required for various orders. In this article, we shall discuss
- What is a margin calculator
- How can you use a margin calculator
- Benefits of a margin calculator
What Is A Margin Calculator
Let us begin by briefly discussing what margin is. Margin is the amount that you have to deposit with your stock broker to enter into a particular trade/s without paying the entire value of the transaction.
The margin required for various types of trade orders varies depending on the type of the transaction, the security you are purchasing or selling, the volatility, etc. Margin serves as collateral for the transaction and provides protection to the stock broker.
A margin calculator is a tool that can be used to calculate the margin required for a specific order. There are several types of margin that apply for different transactions, the primary ones being
- SPAN margin: Short for Standardised Portfolio Analysis of Risk, SPAN margin indicates the maximum possible loss for a portfolio. This type of margin gets recalculated six times a day.
- Exposure margin: This type of margin serves as an additional layer of protection for the stock broker particularly against market volatility.
- VaR margin: Value at rise margin is computed using the historical prices of an asset, and represents the probability of a loss in its value.
- Extreme loss margin: This type of margin is used to calculate the loss that exceeds the VaR margin.
Steps To Use A Margin Calculator
You can use a margin calculator to determine the total margin for a particular trade order. The process of using a margin calculator is as follows:
- Visit the official website of a credible stock broker.
- Access the option for margin calculator.
- Enter the following details into the tool:
- Name of the exchange
- Product type
- Symbol of the product or index
- Nature of the order (buy/ sell)
- Desired quantity
- Select calculate.
- The required margin amount shall be displayed based on the values entered in the preceding step.
Advantages Of Using A Margin Calculator
By using a margin calculator, you can assess the quantum of the funds required to be deposited as collateral with the stock broker.
Furthermore, you can open trading account to maximise your profits and avoid penalties due to shortfall in margin accounts. Here are some of the key advantages of using a margin calculator.
1. Accurate Calculation Of Margin Requirements
With a margin calculator, you can arrive at the precise margin requirements for various trades. The cumbersome calculations are completed instantly and you end up saving time and effort.
2. Ability To Avoid Margin Calls
With the knowledge of the exact amount required as margin for various trades, you can keep your margin account updated. This can help you avoid shortfalls in the account and the resulting penalties.
3. Efficient And Well Informed Investing Decisions
You can compare the cost and feasibility of various trades by computing their margin requirements. Made simpler by a margin calculator, this task can help you make better informed and profitable investing decisions.
The Bottomline
Margin calculators are user friendly tools that can help make the computation of margin requirements swift and efficient. You must ensure that the margin calculator you choose is by a credible stock broker.
