What is Margin Trading Facility (MTF)?
What is Margin Trading Facility (MTF)?
Blog Article
Margin Trading Facility - MTF is a service provided by stockbrokers that allows investors to buy more stocks than they can afford using borrowed funds. Essentially, it's like a loan for purchasing securities. You pay a portion of the trade value (called margin), and the broker lends you the rest.
How MTF Works
Let’s say you want to buy ₹1,00,000 worth of shares. Under MTF, you might only need to pay ₹25,000 (25% margin), and your broker will finance the remaining ₹75,000. The broker holds the shares as collateral until you repay the borrowed amount along with interest.
Key Features
Leverage: Amplifies buying power, allowing larger trades.
Interest: Charged on the borrowed amount, usually daily.
Collateral: The purchased stocks act as security.
Tenure: The holding period may vary—some brokers allow up to 90 days or more.
Benefits of MTF
Higher Returns: Potential to earn more from market gains.
Increased Liquidity: Invest in more stocks without needing full capital.
Flexibility: Trade in both delivery and intraday segments.
Risks Involved
Market Volatility: Losses can magnify if stock prices fall.
Interest Costs: Can eat into profits if positions are held too long.
Margin Calls: Brokers may ask for additional funds if stock value drops.
Who Should Use MTF?
MTF is suitable for experienced traders who:
Understand market trends
Can monitor positions actively
Have a higher risk appetite
Conclusion
Margin Trading Facility is a powerful tool for investors aiming to boost their returns. However, it comes with its share of risks. Always weigh the potential gains against possible losses and use MTF responsibly to make the most out of your trading strategy.
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