A member may provide broker service to its client on cash account and /or margin account basis. Client who pay in full for the
cost of the securities purchased uses cash accounts. Margin is buying securities on credit while using those same or other securities as
collateral for the loan. A client is authorized to borrow part of an investment's total purchase cost from their brokerage firm using margin
accounts. Brokers have policies and procedures to protect themselves from market risk, as well as credit risk.
As per Margin Rules, 1999 the member in no way extends credit facilities to its client until and unless the client maintains margin account with the broker through a written agreement. The client needs to carefully review the margin agreement provided by broker.
The client shall deposit margin not later than seven days from the first date of securities transaction in the form of cash, securities issued by the Government or its agencies, marginable securities etc. The amount of the initial margin would result in the equity being not less than 150% of the debit balance in the account. Additional margin is required to be deposited if the account falls below 150% of the debit balance. The failure to do so may cause the broker to force the sale of or liquidate - the securities in the client's account in order to bring the account's equity back up to the required level.
The firm must also provide the customer with periodic disclosures informing the customer of transactions in the account and the interest charges to the customer.
As a client you may generally use margin to expand your purchasing power. However it also run the risk There are a number of risks that all investors need to consider in deciding to trade securities on margin. These risks include the following:
Please learn about the risks involved in trading securities on margin, and you should consult your brokers regarding any matters they may have with your margin accounts.