UNDERSTANDING MARGIN TRADING FACILITY (MTF)

Understanding Margin Trading Facility (MTF)

Understanding Margin Trading Facility (MTF)

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Margin Trading Facility (MTF) is a service offered by stockbrokers that allows investors to buy stocks by paying only a part of the total trade value. The remaining amount is funded by the broker, essentially acting like a short-term loan against shares.



How Does MTF Work?


When using MTF, an investor can:





  • Pay a partial amount (margin) upfront.




  • The broker finances the remaining balance.




  • The shares bought are held in the broker’s account as collateral.




For example, if you want to buy ₹1,00,000 worth of shares, and the margin requirement is 25%, you only need to pay ₹25,000. The broker funds the rest.



Benefits of MTF




  • Leverage: Amplify your buying power with limited capital.




  • Profit Potential: Higher exposure can mean higher gains (if the market moves in your favor).




  • Hold Period: Unlike intraday trades, MTF positions can be held for multiple days.




Risks Involved




  • Interest Cost: Brokers charge interest on the borrowed amount.




  • Margin Calls: If stock prices fall, you may need to add more funds to maintain the position.




  • Market Volatility: Losses can be magnified just like profits.




Key Points to Remember





























Feature Description
Eligibility Requires an active Demat & trading account
Funding Broker funds part of the trade
Interest Charges Varies between brokers
Pledged Securities Stocks bought are kept as collateral



Conclusion


MTF can be a powerful tool for experienced investors looking to capitalize on market opportunities with limited capital. However, it's important to understand the associated costs and risks before diving in. Use it wisely and always monitor your positions.

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