5.12What is margin?
1What is it?
Margin is the amount of your own money you must put up to take a bigger position, with the rest provided by the broker or allowed by the exchange.
2Why does it exist?
It lets traders control more than their cash, at the cost of higher risk.
3Real-life example
Buying a ₹10 lakh car with a ₹2 lakh down payment and an ₹8 lakh loan. The down payment is the margin.
4Quick revision
- Margin = your own contribution.
- Rest is borrowed or leveraged.
- Higher exposure, higher risk.
5Knowledge check
Q1. In the car example, what is the margin?Show answer
The ₹2 lakh down payment.
Q2. Does margin increase or decrease risk?Show answer
Increase.
Q3. Where else is margin used?Show answer
Intraday, MTF, and futures and options.