Margin Trading Funding Facility by Findoc
What is Margin Trading Funding (MTF)?
Margin Trading Facility (MTF) allows investors to buy securities by borrowing funds from a brokerage or financial institution, using their current investments as collateral. This facility helps traders purchase more than they could with just their available funds, offering more investment opportunities.
Active traders often use MTF to maximize potential returns in volatile markets. However, it also carries risks, as losses can be amplified. Investors must maintain a minimum margin and pay interest on borrowed amounts. MTF is regulated by authorities like SEBI in India to ensure investor protection and adherence to trading guidelines.
How to use MTF?
To use MTF, first, open a margin trading account and activate the MTF and DDPI facilities. After activation, deposit the required initial margin, either in cash or securities, to qualify for borrowing. Then, select the stocks or securities you want to trade and use the borrowed funds to execute transactions.
MTF allows you to leverage your investment, amplifying both potential gains and risks. It’s important to monitor your margin account to maintain the required collateral level and avoid margin shortfalls. Interest is charged on the borrowed amount, and timely repayment is crucial to avoid additional charges or the liquidation of pledged securities.
To successfully complete an MTF transaction, you need to authorize the request to pledge the shares bought under MTF. You will receive this request on your registered email at the end of the trading day. This process is called “Post-Pledge,” and it’s essential for entering an MTF position.
Let’s say you have ₹5000 in your trading account, and you want to buy a stock priced at ₹2500 per share. If the stock qualifies for a 3x margin under MTF, you can buy up to 3 shares with your ₹5000. Here’s how:
- Total value of 3 shares: ₹2500 × 3 = ₹7500
- Your contribution (margin you pay): ₹5000
- Amount funded by Findoc: ₹7500 (total) – ₹5000 (your contribution) = ₹2500
Findoc will fund ₹2500, and you’ll be charged 0.049% interest per day on this borrowed amount.
Interest Calculation:
If you sell the stock after holding it for 10 days, the interest calculation would be:
- Daily interest: ₹2500 × 0.049% = ₹1.225 per day
- Total interest for 10 days: ₹1.225 × 10 = ₹12.25
So, after 10 days, you would pay ₹12.25 in interest for holding these 3 shares through MTF.
Which stocks are eligible for MTF?
The eligible stocks for MTF can be found in the approved list of securities for MTF.
How to enable MTF facilities?
To enable MTF facilities, ensure that your account meets the eligibility criteria, such as DDPI and MTF segments. If these are not enabled, you can opt for them through re-KYC. Once approved, deposit the required initial margin (cash or eligible securities), select the stocks you want to trade, and use borrowed funds to execute transactions.
What are the advantages of MTF?
MTF offers several advantages:
- Leverage: It allows you to trade with more funds than you currently hold, potentially increasing returns.
- Liquidity: You can retain your existing investments while making additional trades.
- Flexibility: You can pledge eligible securities or cash as collateral.
- Higher Returns: During market upswings, the increased capital base can generate higher returns. However, it’s essential to practice disciplined trading and risk management, as losses can also be magnified.
- Regulation: MTF is regulated, ensuring transparency and protecting investors.
How to pledge stocks for MTF?
To complete an MTF order, you need to approve the pledge request sent to your registered email at the end of the day.