Keeping track of margin is crucial while trading in the share market. Margin refers to the money that traders must maintain in their trading accounts as is what assures them that they will have sufficient funds to cover any losses. Margin trading may be a bit complicated. Thus, managing margins properly requires having efficient tools. The online margin calculator is one such useful tool. Let’s discover what an online margin calculator is and how to use it in this article.
What is an Online Margin Calculator?
The online margin calculator is an online tool that helps you determine the margin needed for a trade. Investors can access this web-based tool from a computer, mobile or tablet with an internet connection. The trader must enter the relevant data into the calculator. This includes the asset traded, lot size, and leverage, among other things. The calculator determines the necessary margin for the trade based on this data.
How Does the Margin Calculator Work?
A margin calculator uses a unique algorithm. It shows how much additional money you need to borrow from your broker to trade a particular stock. This is based on the amount of funds you already have in your trading account. In other words, it helps you find out how much margin you must maintain. One can also find out the gross profits.
The method of calculation varies depending on the type of security traded. For instance, a margin calculator will show the amount of margin you would need to deposit to cover the risk involved in a derivative trade. The method estimates a derivative contract’s risk by considering several variables. The following are some of the key ones.
- Asset’s current market value
- Volatility of the asset
- Time remaining till expiry
All of these elements are considered when using a margin calculator to determine how much margin you would need to deposit. The necessary margin may also alter as these numbers do.
How to Use a Margin Calculator
Using a margin calculator is simple. All you have to do is enter the essential information related to the transaction you want to make. Here are the steps you should follow to use a margin calculator and get the relevant results.
- Select the exchange on which you wish to trade.
- Select the type of asset you want to trade.
- Enter the type of trade: buy or sell
- Mention the name of the stock.
- Specify the last traded price of the stock.
- Mention the number of shares you want to buy or sell.
- Finally, click on ‘calculate’.
Upon completing these steps, the margin calculator will provide you with an estimate of the amount of margin you would need to deposit. This will give you an idea of the additional funds you need to make a transaction.
Advantages of Using a Margin Calculator
Here are some of the key advantages of using margin calculators.
Accurate Calculations
Accurate calculations are one of the main benefits of using an online margin calculator. When determining margin needs, traders must take into account many complicated factors.
Quick and Convenient
It is very easy and convenient to use a margin calculator. They don’t need to download or install any software. Rather, all one has to do is visit the web page and enter their transaction details into the calculator. It will instantly give the necessary results.
Provides Margin Alerts
Margin calculators offer notification when the margin levels reach critical levels. This is significant because the broker may close the trades if margin levels drop below a certain limit. Traders may ensure that their accounts have enough money to cover their trades and prevent losses by subscribing to margin notifications.
Conclusion
Margin calculators help in figuring out the amount one must deposit with the broker. Hence, they are both helpful and essential. Nowadays, you may find them in an online stock trading app. Margin calculations are more accurate when they consider certain factors. They are a broker’s capacity for taking on risk, the amount in the trading account, and the stock price of the scrip. They can also be used to calculate the possible loss in a transaction. Margin calculators offered by renowned firms like BlinkX also offer the feature to find the trade value if the asset price increases. The brokerage house provides its clients access to a variety of margin calculators. You may select the one that works best for your needs.
