Securing Your Investments: The Importance of Trading Margin
Margin money is collected by stock brokers from investors before trade execution. It acts as a form of collateral and is used to cover potential losses that may occur due to non-payment or non-delivery of securities. The limit of the margin money is prescribed by stock exchanges/ clearing corporations. This margin can be in the form of cash, securities, or cash equivalents such as fixed deposits, bank guarantees, mutual funds, government securities, or treasury bills in demat form. With effect from September 01, 2020, investors can only provide margin money in the form of securities by pledging them to a specially designated demat account of the stockbroker. This SEBI measure aims to protect investors' interests, ensuring that pledged shares remain in the investor's demat account with only a lien marked in favour of the broker. When margin needs to be released, the lien is removed, and the shares are unfrozen, preventing any potential misuse."
What If You Want an Exemption From the Trading Margin?
Well, you can make use of the ‘Early Pay-in’ facility to get an exemption from margin payments. In case of securities, it is blocked in the investors accounts.
Stay informed: Receive Transaction Reports Regularly, Free of Cost
As an investor, it’s your right to be informed about transactions in your trading account. You can stay informed with free, regular reports from brokers and depository participants. Depository participants and stock exchanges will notify you via your registered mobile number or email address about transactions in your accounts. You will receive monthly reports and quarterly reports, free of cost, on a regular basis.
If you are unsure about a message, reach out to your depository, depository participant, stock exchange or broker. Keep your contact details up to date to ensure timely alerts and statements. If you don't receive a report, raise the issue with the entities concerned.
All Your Investments in One Place: Consolidated Account Statements Explained
The best way to keep a tab on your investment details is to go through the Consolidated Account Statement (CAS). It is a comprehensive statement that provides an overview of all your monthly transactions across Mutual Funds and other securities in your demat account (s).
The CAS is sent by the depositories. It is a single/ combined account statement. The consolidation is done based on the PAN of the primary holder and holding pattern. If there’s no transaction in mutual fund folios and demat accounts, then CAS is sent to the investor on a half-yearly basis i.e holdings of March and September end will be sent in April and October respectively
e-CAS: Fast, Convenient and Secure
Investors can opt for e-statements for CAS transactions. e-Statements are faster, convenient, secure (password protected) and eco-friendly. If for any reason you don’t wish to receive CAS, inform any DP who will update the depository system accordingly.
Note: NPS subscribers have the option to include NPS transactions in their CAS. Eligible investors can consent to Central Record Keeping Agencies (CRAs) for NPS inclusion, gaining a consolidated view of their investments and NPS details.
Navigating the Derivatives Market
Derivatives are financial instruments that get their value from other assets such as stocks, commodities, or currencies. Derivatives are mainly used by investors to hedge their positions and protect themselves from price fluctuations. This process is called hedging, a risk management strategy in which the investors invest in the instruments strategically to offset the risk of any adverse price movements.
- Hedgers
- Speculators
- Arbitrageurs.
- Futures Contract: A futures contract is an agreement to buy or sell a specific asset at a predetermined price on a future date. It’s standardised and traded on stock exchanges.
- Options Contract: An options contract is a financial agreement that gives the buyer the right, but not the obligation, to buy (call option) or sell (put option) a specific asset within a set period of time. The buyer pays a premium for this right. Just like futures contracts, options are traded stock on exchanges.