This 10 page paper is a research proposal and methodology to investigate the impact of margin trading on stock exchanges, to determine whether it is likely to increase volatility or aid with stability, with special attention to developing countries stock exchanges. The paper includes an in-depth methodology proposing the study of a developing nation that allows margin trading. The bibliography cites 11 sources.
there are now many influential markets. This has opened up the potential of investment in the markets to a much broader range of investors, and the markets and brokers have
sought new ways of developing business. With the aim of increasing business with the markets and stimulated demand the number of markets that allow margin trading have increased, in 2005
China allowed the use of margin trading and margin loans, but this was a controversial move, especially for a developing country and was only adopted on a very small and
limited scale, including the FOREX markets (Goldberg, 2005). There have been announcements that the government will allow margin trading to take place but this move appears to be have delayed
and although it is likely that margin trading will take place at some point, but will it benefit the stock market? In 2008/9 the world appears to be suffering economically
with the credit crunch and a number of weak currencies, including the dollar. These are conditions that can result in downturns in the markets, and this is what has been
occurring; many indices are showing a fall. In times such as this it is helpful for policy if governments and financial institutions understand the impact that different types of financial
tools and trading practices have on the performance of share prices and markets especially in areas such as developing countries, where they maybe considering allowing margin trading practices.
The controversy regarding the use of margin trading should be considered in order to assess the impact that it may have on the
market if and when it is fully implemented; some theorists have believed that it has the inherent result of margin trading will be one that can increase the volatility seen