When you open an account to start trading, the broker will send you a daily margin statement. What are these? Are they just a formality, or should you be reading them? We’ll break all that down for you in a minute, but first, let’s take a minute to understand what margins are.
What is a daily margin statement?
A daily margin statement is a report you receive every 24 hours. It essentially presents a summary of your margin account activity. But what is a margin, and what’s a margin account?
Understanding the margin concept
Margins also allow you, as the investor, to buy more shares than you can presently afford. By giving you a margin, brokers let you borrow funds to invest in the stock market. This is called a margin loan. And should you take up the offer, you would be operating on a margin. In margin trading, investors purchase more stocks than their own money permits them to do by borrowing funds from the broker.
The margin percentage varies depending on the broker or stock exchange, the investor’s creditworthiness, and the current market scenario. When the value of the securities in a margin account decreases, the investor will need to deposit additional money or collateral. This is known as a margin call.
The Securities and Exchange Board of India (SEBI) stipulates the margin requirement. This is the minimum equity an investor should maintain in their margin account.
How to understand the daily margin statement
A daily margin statement will invariably display the following details:
- Balance: This is the present balance in the margin account. It includes cash and securities.
- Buying power: The statement shows how much money is available for fresh trades. It considers the amount of cash and securities in the margin account and the maintenance margin requirement set by the broker.
- Used margin: This is the amount of money set aside as collateral for trades currently.
- Available margin: The available margin refers to the money left over for trading after subtracting the used margin and the required margin from the account balance.
- Margin call: When the available margin falls below the maintenance margin requirement, the broker issues a margin call. They do this to get the investor to deposit additional funds or close positions to bring the account to order.
- Positions: This lists all the positions in the margin account, specifying the quantities, market value, and profit or loss.
- Profit and loss: This shows the net profit or loss on all open positions in the margin account after factoring in the current market value, dividends, or interest earned.
What are SEBI rules for the daily margin statement?
SEBI sets the rules regarding the extent of the information that has to be disclosed in the daily margin statement. It specifies that the following details should be included:
- The total aggregate value of all securities held in the margin account;
- The total cash balance in the margin account;
- The total liabilities owed by the investor to the broker;
- The total amount of margin required and the amount of margin available; and
- Date of the margin statement.
It is also the SEBI’s mandate that the statements have to be submitted daily.
Conclusion
Given their nature and contents, daily margin statements can be a boon to investors. They can help plan better for future investments. We hope this explainer has helped you understand them. Happy trading!
FAQs
What is the daily margin statement in stock markets?
A daily margin statement is a document a broker is required to furnish, according to SEBI. It provides complete information on an investor’s margin account. It shows the present value of the securities held in that account, the current outstanding, and the available margin. This helps the investor keep track of their activity and the margin.
How do you read a trading margin?
A trading margin is the amount of money investors need to offer to fulfill the broker to the purchase of securities on their behalf. It is shown as a percentage value of the trade. A margin requirement of 50%, for example, will mean that the investor has to provide funds for 50% of the transaction. The other 50% is provided as leverage by the broker. The percentage value depends on various factors, like the security being purchased and the broker’s policy.
How do you analyze profit margin in a stock market trade?
When you sell a security on the stock market, to calculate your profit margin, first subtract the cost price of the security (the price at which you bought the security) from the sale price (the price at which you have sold it). Then, divide this by the sale price. Multiplying this answer by 100 will give you the profit margin as a percentage. The higher this value, the greater your profit margin. Please remember to include all brokerage/commission and other incidental charges while calculating the cost and the sale prices.
What is the use of daily margin statement?
A daily margin statement provides traders and investors with a summary of their margin account, showing available funds, margin requirements, and positions. It helps manage risk and ensures compliance with margin rules.
What is margin in bank statement?
In a bank statement, “margin” typically refers to the interest rate differential between the bank’s lending and deposit rates. It represents the profit margin or spread the bank earns from lending funds.
Is margin charged daily?
Yes, margin interest is typically charged daily on the amount borrowed in margin trading accounts, fluctuating based on the outstanding loan balance. Interest accrues daily on the borrowed funds.
What is benefit of margin?
Margin trading offers advantages like increased buying power, enabling the purchase of more securities, access to credit, and potential for higher returns. However, it also carries risks, including magnified losses.
