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Write an essay and include the following words: margin account, broker, stocks, price, initial margin, contracts,...

Write an essay and include the following words: margin account, broker, stocks, price, initial margin, contracts, margin call

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Expert Solution

Essay on Stock market trading- Stock market is an online market place where shares of the companies are bought and sold. Investors and traders trade in stock market through the intermediary called Broker.

Types of Trading in stock market-

Margin trading- This trading is done on leverage, trader trades on daily basis that is also called Intraday trading, traders take leverage (limit of loan) from the broker to trade in the securities that are worth more than the money, he has in his trading account.

Delivery based/Carry over trading- When investor buys shares for short term or long term for capital gains then it is called Delivery based trading.

Derivatives trading- This is done in the future market. Derivatives are the securities that derive their values from underlying asset. In stock market, derivative trading is done mostly in futures and options.

Margin account- It is the account of the stock market trader with the broking company (broker) through which broker lends the trader money to purchase the shares. Traders of stock market who do margin trading (daily trading) on leverage (limit of loan), they have to open margin account with broker, broker charges interest on the loan limit. Loan can be given on the basis of securities, that the investor/trader already holds in his DMAT account.

Broker- A broker is an individual or a broking company that facilitates trading in stock market. Investor and traders trade in stock market through broker only. Broker provides DMAT, trading and marin account and charges brokerage.

Stocks- Stock is the part of company's equity share capital. Stock is a financial security issued by a company that represents ownership and voting rights. Public Companies' stocks get traded on exchange.

Price- Price is the current prevailing price of the stock that trade in the stock market.

Initial margin- It is the percentage of the cash that is required to keep in the trading account to initiate a trading position, currently minimum margin requirement is 50%.

Contracts- It is the sum of trading transactions that take place together as a single transaction. Contract has a size that has basket of stocks, also know as lot size.

Margin call-It is the call that occurs when value of investor's trading position falls below the minimum margin requirement. When trader/investor takes a trading position on leverage (loan) and if his net position falls below the minimum margin in the account, trader has to either make the balance payment or sell some of his securities to fulfil the margin requirement.

jeff jeffy answered 1 year ago
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