What is the difference between margin pledging and margin trading?
While both margin pledging and margin trading involve using borrowed funds to amplify your buying power in the stock market, they differ significantly in how they operate and their associated risks. This chart will help you understand the same:
| Feature | Margin Pledging | Margin Trading |
| Borrowing source | Existing holdings | Broker’s funds |
| Collateral | Pledged assets (haircut applied) | Purchased securities |
| Borrowed amount | Portion of asset value | As per the leverage provided by the broker and exchange rules |
| Risk | Market volatility | Market volatility and price movement of purchased securities |
| Benefits | Increased buying power | Greater leverage, ability to short-sell |
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