Margin trading = borrowing money from brokers to buy more stocks than you can afford. Deposit ₹10,000, broker lends ₹40,000, you control ₹50,000 worth of stocks. Sounds great. Reality? Leverage destroys 95% of retail traders.
How Margin Actually Works
Without leverage:
Buy 100 shares at ₹100 = ₹10,000. Stock rises to ₹110 = ₹1,000 profit (10% return).
With 2:1 leverage (4X margin):
Deposit ₹10,000, broker lends ₹10,000. Buy 200 shares at ₹100 = ₹20,000 position. Stock rises to ₹110 = ₹2,000 profit (20% return on ₹10,000 invested).
But stock falls to ₹90? ₹2,000 loss (200% loss of investment) you lost more than you deposited.
That’s leverage killing accounts.
Margin Call: The Killer Mechanic
Brokers require a “maintenance margin” minimum balance protecting their loan. Falls below? Margin call issued.
Example: ₹10,000 account, 50% initial margin, 25% maintenance margin required.
Stock crashes 40%? Account equity drops to ₹1,000, below ₹2,500 required maintenance. Broker demands ₹1,500 additional funds immediately.
Can’t pay? The broker liquidates your positions without permission at worst possible prices.
Real 2025 India Disaster
MTF (Margin Trading Facility) hit ₹96,000 crore outstanding by August 2025 explosive growth. But retail derivatives losses totaled ₹1.06 trillion in FY2025. Early 2025 selloffs destroyed leveraged accounts margin calls cascaded.
Interest Charges Kill Profits
Brokers charge daily interest on borrowed amounts. Even if stock trades sideways, interest compounds. Your winning 5% annual return disappears paying margin interest net loss.
SEBI Rules in India
Max 4:1 leverage offered (deposit 25%, borrow 75%). Not all stocks are eligible only those meeting liquidity criteria. Brokers must maintain strict margin percentages.
But rules don’t stop margin calls destroying accounts.
Real Math Showing Disaster
5:1 leverage, ₹1 lakh capital:
10% stock move WITH leverage = 50% capital move
20% stock move WITH leverage = 100% total loss
One bad trade ends career
When Traders Lose Everything
Overleveraging: Using maximum allowed leverage (4X). First market correction = devastation.
Ignoring margin calls: Hoping stock recovers. Stock crashes more → forced liquidation at losses.
Trading volatile stocks on margin: Penny stocks + margin = guaranteed destruction. Small price swings trigger margin calls.
Using margin on earnings events: Stock gaps down on earnings margin call before you blink.
Real Warning
If 10% move triggers 50% account move, you can’t handle ONE bad week. Most traders can’t.
Brokers benefit regardless they collect interest on borrowed amounts. Your losses = their security.
Stop-Loss Becomes Useless
Set ₹90 stop-loss on ₹100 stock? Stock gaps down to ₹75 = larger loss than planned. Leverage guarantees gaps execute worse than expected.
The Brutal Truth
Margin trading is designed for professionals with:
Risk management discipline
Capital reserves for margin calls
Emotional control under pressure
Trading experience 5+ years
Retail traders lack all four. Margin destroys them.
Better strategy: Trade without leverage, accept smaller returns, sleep soundly.
The average leverage trader loses everything. No exceptions.
