Margin

In finance and investment, margin refers to the collateral or funds deposited by an investor with a broker or exchange to cover potential losses arising from trading activities. It serves as a risk management tool, protecting brokers or exchanges against credit risk when investors trade using borrowed funds or leveraged positions.

Key Characteristics: Required when investors engage in leveraged trading, such as: Buying on margin: Using borrowed funds to purchase securities. Short selling: Selling borrowed securities to repurchase later at a lower price. Derivative contracts: Trading futures, options, or other contracts requiring collateral. The margin amount acts as a buffer to cover potential losses, ensuring that the investor can meet obligations. Margin can be initial (deposited at trade initiation) or maintenance (minimum balance to be maintained during the position).

Example: An investor wants to buy shares worth ₹1,00,000 but only has ₹50,000. The broker allows purchasing on 50% margin, lending ₹50,000. If the share price falls, the investor must maintain the maintenance margin to avoid a margin call