The main aim of the margin trading facility is to help investors maximize their returns while minimizing their margins. As a part of the margin trading facility, an investor has the provision to borrow funds from a broker to buy securities. The value of these securities is usually a lot higher than what the investor or trader can afford on their funds alone. So, to gain a higher position, traders can leverage their capital under the margin trading facility.
However, traders must understand the risks that accompany the margin trading facility and incorporate strategies that mitigate them while also generating high returns effectively. Here is a list of some of them.
Margin Trading Strategies for Higher Returns and Less Risks
There are many strategies traders can incorporate to help gain higher returns, but these strategies also depend on the margin trading meaning and kind of trader one is. There are different strategies for new traders and experienced traders. Here is a look at some of them.
Trading Strategies for New Traders
1. Start Small
New traders and investors need to remember that margin trading can be risky. Naturally, it makes sense to start with a smaller amount and then gradually increase the investment. This helps minimize risk as traders gain more experience.
2. Research
Doesn’t take a genius to figure out that going in blind anywhere will only result in losses. The same applies here. Traders or investors need to do their research before they invest in any security. Everything from the company’s financials to the market trends needs to be evaluated to steer clear of potential losses and help make informed investment choices.
3. Portfolio Diversification
Portfolio diversification helps spread out an investor’s risk potential as it minimizes the repercussions of a single trade on the overall portfolio. This way the potential gains from one investment can offset the losses from another.
4. Have Stop Loss In Place
When used right, the stop-loss provision can prove to be a trader’s best friend. The stop loss provision is essentially an order that is programmed to sell a particular security automatically when it reaches a particular price point. This helps limit losses, thus minimizing risks.
5. Maintaining Discipline
Making impulsive decisions in trading will rarely ever yield profits unless an investor’s luck is the stuff of dreams. This is why investors need to remain disciplined, have clear investment goals and stick to their strategies.
Trading Strategies for Experienced Beginners
1. Stop Loss and Diversification
The stop-loss order and portfolio diversification strategies are as effective for experienced traders as they are for new traders. The stop-loss orders help sell securities automatically after they hit a pre-defined value to avoid loss. Portfolio diversification can help offset the losses incurred in one investment with potential gains from other investments.
2. Technical Analysis
Advanced traders are well versed in analyzing market trends as it helps them make informed decisions. Tools such as charts, price patterns and indicators help in this aspect effectively. When done right, traders can make quick decisions about their investments, based on real-time market data with technical analysis.
3. Fundamental Analysis
With the help of fundamental analysis, traders can gauge the financial health of a company. By gaining access to a company’s financial statements, earnings, etc. investors can try to determine the value of the company’s stock.
4. Options trading
With options trading, investors have the right to buy or sell options contracts without having the obligation to do so. These contracts consist of underlying assets that need to be sold or bought before their expiry at a pre-defined amount. This helps traders limit risks while staying open to the advantages the market offers.
Conclusion
The margin trading facility is a provision that helps investors and traders attain a higher position with a minimum margin. However, to take advantage of this provision and to generate high returns with minimal risks, it is important to follow the right strategy. Strategies can vary from one trader to another, so investors and traders need to make informed decisions to make the best of the margin trading facility.