Comment on Trading Q&A
commented on
25 Dec 2017, 01:47 PM
Deepak, the leverage afforded to any stock is determined by the RMS team based on various parameters, like liquidity, volatility, etc.,. Also, whenever leverage is afforded for a stock, there is a chance that the loss the client runs may be more than what he has in his account. The broker always runs this risk while giving leverage, and so does thorough math before affording any leverage.
For e.g., let’s assume stock X costs Rs. 100 and is afforded 14 x leverage. So, with 100 rupees in your account, you can purchase stocks worth 1400 rupees. Let us also assume that the circuit limit for this stock is 20%. So, if the stock suddenly falls 20%, the loss here is Rs. 20 * 14 = Rs. 280 (1.8 times more than the money in your account). Now, this would lead to a debit on your account. So, in order to make sure a scenario like this doesn’t arise, the leverage multipliers are different for each stock.