The leveraging facility from your broker helps you buy or sell stocks more than what you can other wise afford to trade.
How does Intraday leverage work ?
Suppose you have 10,000 INR in your trading account and you want to do an intraday trade on a 100 INR stock
Logically you can buy only 100 shares with you 10K trading funds.
But , with leveraging applied, the broker lets you buy 1000 shares. Provided you square off the position on the same day.
Your 10,000 INR is leveraged 10 times to 1,00,000 INR. With this extra 90,000 of loaned capital you can buy 1000 shares.
Many traders find this as a necessary evil in the daytrading profession.
What is the traditional Industry standard for Intraday leverage ?
In the West, leveraging is allowed for all stocks traded in the exchange. However, In India, the traditional industry practice was to give you leverage only on the most liquid stocks. The leverage facility was available mostly for the F&O underlying stocks. By restricting leverage to liquid stocks, the broker protects their own shirt getting torn for your mistakes.
Most brokers give up to 10 times leverage as a standard practice for intraday trading of F&O stocks.
Latest updates on MIS leverage, in Indian Stock brokerage Industry .
It was Finvasia , a global fin-tech brokerage Firm in India that started the change. First they came up with brokerage free daytrading for retail clients. Secondly, they extended their universal 10 x leverage to even the NON F&O stocks. With Finvasia the retail day traders in India now gets the opportunity to trade NON F&O stocks with leverage applied.
The competition intensified with the liberalization of the brokerage Industry licencing in India. Many brokers are now willing to take more risk to get more clients. Providing more leverage was the best bait to lure in more punters towards them.
With some stock brokers, you can now avail up to 40 x leverage on Intraday Trading of F&O stocks.
Traditionally the industry practice was to shake the retailer daytrader dry, nice and slowly. By giving you small leverage and making sure you trade more number of days. Now the new players in the Industry wants to dry you out in one SHURESHOT.
Be warned that with 40 x leverage applied a 2.5 percent change in the opposite direction is sufficient to empty your trading account.
Which Brokers in provide the maximum leverage for Intraday trading of Equity stocks ?
- Wisdom Capital = 40 x leverage on equity stocks. more info
- Astha Trade = 40 x leverage on equity stocks. more info
- Tradesmart Online = 40 x leverage on equity stocks.
Whats the CATCH on excessive Intraday Leverage ?
When the brokers give you more leverage , they are no more willing to let you trade for cheap. This mean the brokerage you are liable to pay is not limited to a maximum cap of 20 or 40 INR per trade. They now wants to charge brokerage as a percentage of your equity turnover. The more leverage you apply , more the trade turnover and you end up paying even more brokerage.
With more leverage for Futures and Option trading, they charge you a fixed sum PER LOT (not trade) or a percentage of your total Futures turnover.
Finally, the maximum leverage trading plans of the above brokerages are difficult to understand. Its like this, they give you this but you cannot take that. Its too confusing to find the correct trading plan with the good blend for Equity, F&O trading, Currency or Commodity Trading. You end up paying less brokerage on one segment and end up loosing on brokerage on the other segment.
The logic is to, find the correct Brokerage Trading Plan with the maximum leverage for the segment you need most.
Stick with just one segment on one Brokerage Plan and find the correct balance.