Leverage in Stock Market – Explained

Imagine you have ₹1000 and the intraday leverage given by your broker is 5x. This means you can trade intraday for ₹5000 in spite of having only ₹1000 in your trading account. The additional ₹4000 is given by your broker and they may charge an interest on it.

If your trading capital is small, then leverage can make or break your trading capital. Let’s look at the bright side of it. All this while I used to think I need four lakh rupees to earn ₹2000 per day. But once I got to know about leverage, I realised that I need only 80K and the remaining would be given by my broker. If I make ₹2000 per day from ₹80,000 then it’s literally 2.5% return per day (excluding taxes and fees). Sounds good right ? But the drawback with this is, when trade doesn’t go your way you end up losing big as you have borrowed 5 times your capital. So basically there’s risk. If you want to know how to prevent this risk then check out my post called ‘Day Trading Tips’.

If you struggle to make ₹10 from the stock market then there’s no point in aiming for ₹50. But if you’ve learnt the art of making money from the stock market, you can become rich by using your broker’s money. Recently there was a ban on leverage in Futures and Options and many were upset about it. But in equity market you still get leverage on intraday. I trade equity. Considering you can make at least 1% per day after various charges, equity isn’t that bad. Note, this 1% comes when you are scalping (in my case). If you are a pro trader and do many scalps or have a bigger risk return ratio then the profit is ultra huge. Let me explain this with an example, imagine the price of the stock is ₹50 and you have ₹80,000 and you take 5x leverage, now you have 4 lakh rupees and you can buy 8000 shares since each share costs ₹50. The math is ₹4 lakh divided by ₹50, which is equal to 8000 shares. If you bought the shares at ₹50 and now if the price of the stock hits ₹51, you make ₹1 per share, ₹1 multiplied by 8000 shares is ₹8000. Boom !!! that’s a return of 10% on your capital in one day (your actual investment is only ₹80,000). That sounds pretty doesn’t it ? But to get to that position you should be a pro trader.

Let’s get to the drawbacks of leverage. Imagine you bought 8000 shares but when you want to sell it there are buyers for only 1000 shares. This creates a long squeeze (if you don’t know what that means then check it out on my website after reading this post), if you are a short seller you may experience a short squeeze. So even though the broker gives you leverage you should know how to use it. Also brokers charge brokerage for each transaction. If your 8000 shares get sold in 8 transactions, then you’ll be charged for all the eight transactions. Recently, I saw an ad where the brokerage was fixed at ₹899 per month for intraday trading, irrespective of the number of trades. I haven’t used it. But yes if you trade in lakhs and crores, then such offers may come in handy. Also verify the quality of the broker before signing up for such offers.

Hey, do you want to know the stock that I’m day trading for the past three years ? If yes, I charge ₹100 for it. You can WhatsApp me on +91 9964813325 to know the name of the stock. Also, this particular stock’s trading volume is in crores per day. So getting in and out is easy and you mayn’t face short squeeze and long squeeze if you have a stop loss. I accept Google Pay and Paytm.

By the way, did you find this post useful ? If yes, there’s more such posts on this website so do check them out before closing the tab. See you next time with different one. Byeee 🙂