Want to buy more stocks but don’t have enough cash? Margin Trading Facility (MTF) lets you borrow money from brokers to buy more shares. Let’s find out exactly how it works, the benefits, and risks, and if it’s right for you.
What Exactly Is MTF (Margin Trading Facility)?
Margin Trading Facility is a way to buy stocks using borrowed money. Imagine you want to buy shares worth ₹10,000 but have just ₹2,500. MTF lets your broker lend you the extra money you need. It’s like taking a small loan to buy bigger amounts of shares.
Here’s how MTF typically works in simple steps:
- You only pay a part of the total share cost (usually between 25% to 50%).
- Your broker lends you the rest of the money.
- You pay a small daily fee called interest on this borrowed money.
- You gain extra buying power to trade larger amounts of shares.
Risk vs. Reward: How Leverage Impacts You
Key Takeaways
- Risk-Return Correlation: Higher leverage brings higher reward—but much higher risk.
- Volatility Impact: Leverage magnifies loss in volatile markets.
- Margin Requirements: Higher leverage demands more margin, often 15–50%.
- Capital Efficiency: More exposure with less capital—but only with proper risk management.
- Experience Needed: Higher leverage is best used by advanced traders.
How MTF Works – A Simple Example
Let's look at it clearly through a quick example:
- You want to buy 100 shares priced at ₹1,000 each (total ₹1,00,000).
- With MTF, you don’t need the full amount right away.
- You only put in 25%, or ₹25,000, from your own pocket.
- Your broker pays the remaining ₹75,000 as a loan.
- Each day, you pay interest (like 0.04%) on that ₹75,000 you've borrowed.
That's how easily MTF increases your buying power by four times your original cash.
Main Benefits of Using Margin Trading Facility
There are four key benefits you can get from MTF:
- Greater trading power: You buy more shares than normally possible.
- Higher profits (sometimes): If the stock price goes up, the gains become larger due to extra shares.
- Quick opportunity: Instantly grab market opportunities without waiting for more cash.
- Diversify easily: You can buy various stocks without selling your current savings.
Here’s a quick case study:
Ravi, an experienced investor: "Using MTF doubled my trading power. My returns jumped to 17.45% instead of just 9.33% in five weeks."
Risks You Must Be Aware Of
MTF gives big opportunities, but it also has big risks:
- Higher losses: If the stock prices fall, losses become bigger.
- Extra costs: Borrowed money means you pay interest daily, so less profit is possible.
- Margin calls: If your stock’s value drops too far, brokers force you to pay more cash immediately.
- Forced selling: If you can't add more money after a margin call, your broker will sell your shares without asking you.
A trader’s real-life experience:
"MTF was great during a market jump. But later I lost heavily when prices dropped. It's risky and needs careful handling."
Is This Margin Trading Approach Right for You?
MTF isn't for everyone. It could fit you if you are:
- An experienced investor who understands stock markets well.
- A risk-taker, comfortable with sudden market gains and losses.
- A short-term trader seeks fast returns rather than holding long-term stocks.
Getting Started in MTF: 3 Simple Steps
Starting MTF is easier than you might think. Here’s what you need to do:
- Step 1: Open a demat account—ask your broker about adding MTF.
- Step 2: Check your eligibility—brokers have simple rules like minimum cash balances.
- Step 3: Pick a trustworthy broker—popular ones like Zerodha or Fyers have easy-to-use MTF features.
For example, Upstox created a fast online MTF tool in 2019. Traders needed only three clicks to start, causing many new traders to join and grow trading activity rapidly.
Margin Trading Facility in Top Brokers
Let us discuss MTF in two of the top Indian stock brokers, Zerodha and Fyers.
Zerodha
In Zerodha if you want to apply for an MTF order in a stock you will receive a pop-up to Enable MTF first. You need to agree to the terms and conditions and click Continue.
In this example, I can buy 100 quantities of Britannia Industries shares costing Rs 4814.05 by paying only Rs 95810.00 + Rs 592.57 (original amount required Rs 481405.00). This is the power of the Margin Trading Facility.
Fyers
In Fyers also you can trade using margin from the broker. To start, click on MTF and it will ask you to enable MTF.
Click on the Enable button and it will open another prompt where it will ask you to enable DDPI (Demat Debit and Pledge Instruction) for a seamless trading experience with the margin trading facility. You can enable DDPI or you can also watch the list of stocks eligible for MTF.
You need to pay Rs 150 to enable DDPI and once it is done you can enable MTF.
Smart Margin Trading: Best Practices
You can reduce MTF risks by following these tips:
- Set Stop-Loss Orders: These automatically sell stocks if prices fall too far.
- Keep Enough Margin: Don’t use all your margin at once. Save extra cash for emergencies.
- Check Stocks Daily: Watch closely how your stocks perform. Stay ready to quickly protect yourself.
- Use Risk Management: Always spread your investment across different stocks to lower risk.
Comparing MTF with Other Trading Styles
Here's how margin trading compares to normal stock buying:
| Feature | MTF | Regular Stock Trading | Futures & Options |
|---|---|---|---|
| Leverage | Yes (borrow money) | None (use own money) | Yes (contracts) |
| Risk Level | High | Moderate | Very High |
| Interest Costs | Daily charges | No Charges | No; premium costs instead |
| Investment Needed | Low upfront | Full amount needed | Lower upfront |
MTF lets you trade more shares than regular stock buying but is riskier. Futures & Options are more complex and riskier than MTF.
What SEBI Rules Say About Margin Trading Facility
The government (SEBI) sets simple rules to protect margin traders in India:
- Brokers must maintain clear guidelines and tell you all risks upfront.
- You must maintain the minimum margin limits required by brokers (usually about 25-50% of the total stock cost).
- Brokers can liquidate (sell) your shares without approval if your margin level drops significantly.
Following these rules helps everyone trade safely.
Frequently Asked Questions
No, brokers usually lend between three and five times your money. It depends on the stock and market conditions.
Yes, it’s different. Margin money is loaned specifically to purchase stocks and has special rules. Interest is charged daily based on your stocks' borrowed amount.
Margin calls occur if the stock price drops below your broker’s safety limit. It’s not common if you stick to stable stocks and follow good practices.
It's best for short-term trading. Interest adds up over time, making MTF costly for long-term use.
Final Thoughts on Using MTF Wisely
MTF can help you amplify your profits and give you quick buying power. But because it's risky, here's how to decide if you should use it:
- Understand Clearly: First, learn the benefits, costs, and risks we covered and feel comfortable.
- Start Small: Use only a little margin at first until you get confident and experienced.
- Follow Best Practices: Set stop-loss orders, keep enough cash handy, and always watch your stocks closely.
If you take these steps, the Margin Trading Facility can become your helpful tool for stronger trading power and increased chances for profit.