The Margin Trap: A High-Stakes Tale

In the heart of Mumbai’s financial district, Rohan Malhotra, a 26-year-old aspiring trader, walked into the sleek offices of Silver Crest Securities, a top brokerage firm. He had dreams of making it big in the stock market, and today, he was about to take his boldest step yet—buying on margin.

The Allure of Leverage

Rohan had ₹1 lakh in savings, but he was eyeing a tech stock, NexGen Corp, which had been surging. His brokerage firm offered him margin trading, meaning he could borrow another ₹1 lakh and double his investment to ₹2 lakhs.

His calculations looked perfect:

• If the stock rose by 20%, his ₹2 lakh investment would become ₹2.4 lakhs.
• After repaying the borrowed ₹1 lakh, he’d walk away with ₹40,000 profit—a 40% return on his ₹1 lakh capital!
• But if the stock fell by 20%, his investment would drop to ₹1.6 lakhs, and after repaying the broker, he’d be left with just ₹60,000, meaning he’d already lost 40% of his capital.

Despite the risk, greed took over. He went all in.

The Rise Before the Fall

At first, Rohan’s strategy worked like magic. NexGen’s stock price climbed 10% in a week, and his portfolio value jumped to ₹2.2 lakhs. He felt invincible. “This is how the pros do it,” he thought.

Then, disaster struck.

A surprise regulatory investigation hit NexGen Corp, causing panic. Within two days, the stock plummeted 25%, bringing Rohan’s investment down to ₹1.5 lakhs.

The Margin Call: The Ultimate Nightmare

Early in the morning, Rohan’s phone buzzed. It was an email from his broker:

MARGIN CALL ALERT: Your account has fallen below the minimum required balance. Deposit ₹25,000 immediately or your positions will be liquidated.

Panic set in. He didn’t have ₹25,000 lying around. If he couldn’t meet the margin call, the broker would force-sell his stocks at the market price, locking in his losses.

Forced Liquidation

With no way to cover the margin, his brokerage automatically sold his holdings at a loss. His initial ₹1 lakh investment had shrunk to ₹50,000—a 50% loss in just days.

Lesson Learned

Rohan sat in shock, staring at his screen. He had been too greedy, too overconfident.

His mentor, an old-school trader, patted him on the back.
“Margin can make you rich, but it can wipe you out just as fast. Use it wisely, or it will use you.”

Rohan vowed to trade smarter—no more blind risk-taking, no more gambling on margin without a safety net.

[Finance]