You Need A Better Combination Of Brokerage Rate And Exposure
In the share market there are some parameters that one must know to earn with every trade. For the bulk traders the situation is much different than the retail traders as they have volume based trading and hence they need to have high exposure to their low margin also. In such a scenario one needs to understand the concept of brokerage, funding and exposure first so that he can take right decision at crucial moments in the market. The broker is the person who is a mediator between client and exchange. He charges certain amount which is called brokerage for his services.
The margin money or margin fund:
As a trader one needs to pay certain amount to the broker which is deposited in his trading account only. This amount is used for trading purpose. The broker also offers some credit to the client on the basis of his fund. It called exposure or margin funding. The limit of exposure or margin fund varies from client to client. While offering the same the broker checks some of the basic things like trading pattern of the trader, his financial capacity, regularity and volume. If the client’s relations with the broker are good and broker finds him genuine, he can have low brokerage high exposure also. However, it is rare that broker offers discount in brokerage as well as high exposure as the brokerage is the prime source of his revenue while high exposure can risk the profile of the client also.
Why high exposure is not preferred?
High exposure means the fund of the client is low but he is given a huge credit. If the broker offers 10 times exposure it means on the fund of 10000 the trader can trade for the amount up to 100000. Now if due to any reason the client has to square off the position in loss and suppose he has to lose 5000 still there will be 5000 in his account. Now if the broker offers 25 times as exposure to 10000 fund the trader can trade up to the amount of 250000. If the client has to bear even half of the amount as loss it will be 12500 which is not there in his account also. In such case the fund of the client is also lost and the broker has to run behind him for 2500 which is due amount.
Usually in the market the traders go for more trades with high exposure and if one has not that much sound financial stability his profile may come to risk and even the broker may land into troubles. Hence majority of the brokers do not prefer to have more of the exposure to the client unless there is some strong reason. With less exposure the client and broker both can play safely in this market. To have better trading and regular income the client must also not prefer to go for the high exposure if he does not deal in bulk trades.