Demat account: What is leverage trading and how does it work? MintGenie explains

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By utilising a demat account for leverage, you can employ a potent strategy that may significantly boost your potential returns while trading in the stock market. Leverage empowers investors to command a larger market position with a relatively modest capital investment, magnifying both profits and losses.

Leverage akin to a double-edged sword must be wielded judiciously to navigate the volatile waters of finance without succumbing to substantial losses. Embarking on the leverage trading journey through a demat account opens doors to lucrative opportunities, yet it demands a steady hand to steer clear of financial pitfalls.

Also Read: Demat Accounts: How to operate them through mobile apps?

Before delving into the benefits of using a demat account for leverage trading or margin trading, it's crucial to understand the distinction between trading and investing.

Trading involves frequent buying and selling of shares to profit from short-term stock price fluctuations, while investing entails purchasing company shares with the aim of becoming a shareholder and participating in the company's growth over the long term, potentially earning capital gains through stock appreciation and dividends.

For example, if you buy a share and sell it for a profit within a short period, it's considered trading; holding onto the share for a longer duration qualifies as investing. The demat account serves as the storage space for these shares.

Also Read: Can you link multiple trading accounts to your demat account? MintGenie answers

Demat and trading accounts are separate offerings provided by depository participants. If you're a trader, you can open a trading account, while investors typically opt for a demat account.

Depository participants