Introduction

Investing in the stock market often requires substantial capital, and traders frequently look for ways to leverage their positions to maximize opportunities. Margin Trading Facility (MTF), often referred to as Pay Later, allows traders to buy stocks with borrowed funds while paying only a fraction of the total amount upfront. This strategy, known as margin trading funding, helps traders amplify their buying power and potentially increase their returns.

But how does MTF trading work? What are the risks and benefits? And most importantly, how can you avail of the Pay Later facility? Let’s dive deep into MTF in the share market, covering everything from margin requirements, interest rates, and MTF calculators to stocks on margin and option selling margin.

What is MTF in Share Market?

Margin Trading Facility (MTF) is a form of leverage where traders borrow money from their brokers to buy stocks. Instead of paying the full price, they provide margin money (a fraction of the stock’s value) while the broker funds the remaining amount.

MTF is particularly useful for traders who:

• Want to invest in high-value stocks but have limited capital.
• Believe in short-term opportunities and wish to increase exposure.
• Want to hold stocks for a longer period while maintaining liquidity.

You may also want to know What is BSPL (Buy Stocks Pay Later)?

Understanding Margin Trading

What is Margin in Stock Trading?

Margin refers to the initial amount a trader must deposit to enter an MTF trade. It acts as collateral against the borrowed funds. The margin amount varies based on the broker’s policies and the stock being traded.

For example, if a stock is priced at ₹1,000 and the broker provides MTF at 4x leverage, the trader only needs to pay ₹250, while the broker funds the remaining ₹750.

What is Margin Requirement?

The margin requirement is the minimum capital a trader must maintain in their account to use MTF trading. It depends on factors like:

• The volatility of the stock.
• The trader’s risk profile.
• The broker’s margin policies.

A failure to maintain the required margin may lead to a margin call, where the broker asks the trader to add more funds or liquidates some positions.

You may also want to know What is Peak Margin?

How Margin Trading Funding (MTF) Works

Stocks on Margin: How to Trade with MTF

When you trade with stocks on margin, you are essentially buying more shares than your capital allows. The process is simple:

1. Select eligible stocks under MTF trading.
2. Pay the initial margin money as per the broker’s requirements.
3. The broker funds the rest of the amount.
4. You hold the stocks in a demat account and pay an MTF interest rate on the borrowed funds.
5. When you sell, you return the borrowed amount and keep the profit (or bear the loss).

Option Selling Margin: Leverage in Derivatives Trading

In addition to equities, traders can use margin funding for options trading. Option selling margin is higher because selling options involve greater risk.

Example:

• Buying an option requires premium payment only.
• Selling an option requires margin money, which acts as collateral in case of adverse price movements.

Traders using MTF for options need to maintain adequate margin levels, or they risk forced liquidation.

Margin Trading Funding vs Regular Stock Trading

MTF Interest Rate & Cost Considerations

How MTF Interest Rate is Calculated?

Since margin trading funding involves borrowing money from a broker, an MTF interest rate applies to the borrowed amount. The interest varies across brokers and depends on factors like:

• Stock volatility.
• Holding duration.
• Brokerage charges.

Example of MTF Interest Rate Calculation

If you buy stocks worth ₹1,00,000 using MTF, paying ₹25,000 as margin money, the remaining ₹75,000 is borrowed.
If the interest rate is 14% p.a., the daily cost is: ₹75,000×14 /100×1/12

Holding the stock for 30 days would incur an MTF interest cost of ₹862.80.

Factors Affecting MTF Charges

• Higher holding period → More interest cost.
• Higher leverage → More risk and funding cost.
• Stock category → Some stocks require a higher margin.

Using an MTF Calculator to Plan Trades

What is an MTF Calculator & How It Helps?

An MTF calculator helps traders:

• Determine the margin requirement.
• Estimate MTF interest costs.
• Plan trades based on capital availability.

Most brokers offer an MTF calculator on their website, where traders enter:

• Stock price
• Quantity
• Broker’s margin funding ratio
• Holding period

This helps traders optimize their MTF trading strategy and avoid surprises.

Steps to Avail Pay Later (MTF) for Trading

1. Eligibility & Account Setup

To start using Margin Trading Facility (MTF), traders need to ensure they meet the eligibility criteria set by their broker. The process involves:

Opening a Trading & Demat Account:

• Choose a broker that offers MTF trading. Brokers like Jainam Broking Ltd. provide a seamless process for margin trading funding.
• Ensure that the trading account is linked to a demat account, as the stocks purchased under MTF will be held in the demat account.

Submitting KYC Documents for Verification:

• Brokers require standard Know Your Customer (KYC) documentation before granting access to MTF in share market.
• Documents usually include a PAN card, an Aadhaar card, proof of income, and a signed agreement for availing margin funding.
• Some brokers may also evaluate the investor’s risk profile and trading history to determine their eligibility.

Once the verification is completed, the trader gains access to stocks on margin and can start using the Pay Later (MTF) facility.

2. Margin Requirement & Funding Process

Once eligible, traders must follow the margin funding process:

Deposit the Required Margin Money:

• Every MTF trade requires the investor to pay an initial margin. This acts as a security deposit against the broker’s funds.
• The margin requirement depends on factors like the stock category, broker policies, and SEBI regulations.
• For example, if a stock is priced at ₹1,000 and the broker offers 4x margin, the trader only needs to pay ₹250 upfront, while the broker funds the remaining ₹750.

Select Stocks on Margin That Qualify Under MTF:

• Not all stocks are available for MTF trading.
• SEBI and brokers maintain a list of approved securities that qualify for margin trading funding.
• Traders should verify which stocks on margin are allowed before placing orders.

Broker Funds the Rest, and Trading Begins:

• Once the margin amount is deposited, the broker funds the rest of the trade.
• The purchased stocks are held in the trader’s demat account, but they remain pledged to the broker until the margin loan is repaid.
• The trader incurs an MTF interest rate on the borrowed amount, which must be repaid along with the principal before the settlement deadline.

3. Risks & Best Practices for Using MTF

While MTF in share market can enhance buying power, it comes with certain risks. Traders must follow best practices to manage risks effectively.

Avoid Over-leverage:

• Trading beyond your capacity can lead to massive losses.
• While margin funding increases buying power, it also magnifies risks in volatile markets.
• Always assess risk tolerance before using MTF trading for large positions.

Monitor Interest Costs:

• Since brokers charge an MTF interest rate on borrowed funds, the cost of holding margin positions can erode profits.
• If a trader holds stocks for longer durations, interest costs may accumulate significantly.
• Use an MTF calculator to estimate costs before executing trades.

Track Margin Calls & Maintain Margin Requirement:

• If stock prices fall, traders must maintain the margin requirement or face a margin call from the broker.
• Failing to add funds during a margin call can result in forced liquidation, where the broker sells pledged stocks to recover dues.
• Regularly tracking stocks on margin and keeping buffer funds can help prevent unexpected position closures.

Conclusion

Margin Trading Facility (MTF) enables traders to amplify their exposure with limited capital by leveraging margin trading funding. While it offers greater opportunities, it also comes with risks like interest costs, margin requirements, and market volatility.

At Jainam Broking Ltd., we provide seamless MTF trading, competitive MTF interest rates, and robust risk management tools. Our MTF calculator, real-time margin tracking, and expert support help traders navigate stocks on margin with confidence.

So, are you planning on trading in the Margin Trading Facility? If yes, you are at the right place! 

Open a Demat Account with Jainam Broking Ltd. Now!