The role of margin trading

1. Stabilizing market prices

Margin trading can integrate more information into securities prices and can provide the market with opposite directions. Trading activities, when investors believe that the stock price is too high or too low, they can use financing purchases and securities lending sales to promote the stock price to become more reasonable, which is conducive to the formation of the market's internal price stability mechanism.

2. Increase the liquidity of the securities market

Margin and securities lending transactions can amplify the supply and demand of funds and securities to a certain extent, increase the trading volume of the market, thereby activating the securities market and increasing the securities market. of liquidity.

3. Avoid market risks

Margin and securities lending transactions can provide investors with new trading methods, change the unilateral aspects of the securities market, and help investors avoid market risks. tool.

4. Broaden the scope of securities business

Margin financing and securities lending can broaden the business scope of securities companies and increase the application channels of securities companies’ own funds and self-owned securities to a certain extent. In the implementation After circulation, other funds and securities financing and allocation methods can be added to improve the efficiency of financial asset utilization.

Margin and securities lending transactions

Margin and securities lending transactions, also known as credit transactions, are divided into margin transactions and securities lending transactions.

Financing transaction:

Financing transaction means that investors use funds or securities as pledges, borrow funds from securities companies for securities purchases, and repay the loan principal within the agreed period. and interest. When an investor obtains financing from a securities company to purchase securities, it is called "buying long."

Securities lending transaction:

Securities lending transaction means that investors use funds or securities as pledges to borrow securities from securities companies and sell them, and within the agreed period, they buy the same amount and The various types of securities are returned to the securities dealer and the corresponding securities lending fees are paid. Investors lending securities to securities companies and selling them is called "short selling."

Margin and Securities Lending Profit Tips

Financing Transactions:

The margin submitted by investors to the securities company can be cash or securities that can be used as margin. After the securities company grants credit to the investor, the investor can purchase securities within the credit limit that are included in the list of financing targets published by the stock exchange and the securities company. If the security price rises, the security will be sold at a higher price. At this time, the investor only needs to repay the debt, and the investor can make a profit; if the security price falls, funds will be invested to purchase the security, which requires the investor to make up the funds to repay it. Investors lose money.

Securities lending transaction:

Investors pay a certain deposit to the securities company, and the entirety serves as collateral for their debts to the securities company. Securities lending transactions provide investors with new ways to make profits and ways to avoid risks. If investors expect that the price of a security is about to fall, they can borrow the security and sell it, and then make a profit by buying and repaying the security at a lower price; or they can hedge the price fluctuations of the securities they already hold by selling securities for hedging purposes.

Risks of margin trading and securities lending

1. Risks of leveraged transactions

Marginal trading has the characteristics of leveraged trading. The investment scale provides a certain proportion of trading leverage, and losses will be further magnified.

2. Risk of forced liquidation

In order to protect its own claims, securities companies monitor the assets and liabilities of investors’ credit accounts in real time, and can execute guarantees on investors’ assets under certain conditions. Forced liquidation.

3. Regulatory risks

Regulatory departments and securities companies will take regulatory measures when margin trading and securities lending transactions are abnormal or systemic risks arise in the market. In order to maintain the smooth operation of the market, margin trading and securities lending transactions may even be suspended.

4. Other risks

1) During the period when investors are engaged in margin trading and securities lending transactions, if the benchmark loan interest rate of financial institutions stipulated by the People's Bank of China for the same period is raised, the securities company will adjust it accordingly. If the financing interest rate or securities lending rate is high, investors will face the risk of increased margin financing and securities lending costs;

2) During the period when investors are engaged in margin trading and securities lending transactions, if their credit qualifications are reduced, securities companies will The credit limit to investors will be accordingly reduced, resulting in restrictions on investors' transactions and investors may suffer losses.