Margin Trading Facility (MTF) is a service offered by stockbrokers that allows investors to buy stocks by paying only a portion of the total value, while the rest is funded by the broker. It’s like borrowing money to buy more shares than you could with your available cash.
How Does MTF Work?
When you use MTF:
You pay a percentage of the stock price (called margin).
The broker funds the rest.
The stocks you buy are held as collateral until you repay the borrowed amount.
Example:
If you want to buy ₹1,00,000 worth of shares and the margin is 25%, you only need to invest ₹25,000. The broker provides the remaining ₹75,000.
Benefits of MTF
Higher buying power with less capital
Flexibility to hold positions beyond one day
Opportunity to earn more in rising markets
Risks of MTF
Interest charges on borrowed funds
Margin calls if stock prices fall
Potential for amplified losses
Who Should Use MTF?
MTF is best suited for:
Active traders
Short-term investors
Those with good market knowledge
Conclusion
Margin Trading Facility is a powerful tool for increasing market exposure, but it comes with risks. Use it wisely, understand the charges, and always monitor your positions to avoid unexpected losses.