What is Margin Trading Facility (MTF)? Meaning, benefits and process


by Ankita Lodh on 3 July 2024,  6 minutes min read


As an investor, you should know how crucial it is to take advantage of the “right” time to enter a position in your daily investment app. However, many traders face the common scenario of losing an opportunity just because they were low on funds at that moment.  Margin trading facility, or MTF, in short, helps investors like you bypass this hurdle in an exchange-approved way. How? Let’s discuss this in more detail in today’s article. 

What is the margin trading facility (MTF)?

As an exchange-approved product, the margin trading facility gives you a safe way to trade and buy stocks with limited funds. With MTF, you just have to pay a small portion of the total transaction or position value (margin) to initiate a trade; the broker will cover the remaining balance.

Margin Trading Facility (MTF)

Investors can pay the margin in both cash and non-cash holdings, like shares in your demat account, as collateral. Since it offers leverage, MTF is also referred to as leverage trading in the market, as it is trading with borrowed funds to increase your buying power.

Margin trading facility example

Let’s understand the concept of MTF with a small example.

Suppose you want to buy shares worth ₹80,000, but at the moment you only have ₹20,000 in your account. With MTF, you get up to 4x buying power on Dhanush, which means you can buy ₹80,000 worth of stocks in only ₹20,000. 

MTF allows you to do more with less, in a secure and cost-effective way.

Advantages of investing in MTF

Better leverage:

With MTF, you can get increased purchasing power, trading more with less capital. A margin trading facility helps you overcome the challenges of limited funds by allowing you to trade bigger positions with a small amount of trade value. When you get the opportunity to borrow more funds than you have at the moment, it opens up the doors for you to trade bigger than it would have been possible with available funds alone. Margin trading facilities also help investors capitalise on possible short-term market opportunities. 

More flexibility:

In conventional trading, investors often need to have sufficient funds to execute a particular trade. MTF, or margin trading facility, offers investors the flexibility to borrow more with limited fund reserves. This way, investors get more control to react to the volatile market promptly and make the best of the short-term trends. 

Capture short-term opportunities:

If there is a sudden dip in a particular stock’s price, with MTF, you can easily take advantage of borrowed funds and enter the position. You can make the most of the opportunity even if you have limited funds and capitalise on the dip. 

Higher returns:

Your returns can increase by using the margin trading facility option, which enables you to invest a larger trading amount. For example, if you use cash as the margin and have ₹50,000 you can buy up to ₹2,00,000 (up to 4x leverage) worth of shares through MTF.

Cost-effective solution:

Using MTF offers a more beneficial financial option compared to other alternatives like personal loans. Interest rates provided by margin trading are also more financially beneficial, which is the main driving factor behind attracting traders. 

Understanding the MTF pledge

Before we move on to how you can use the margin trading facility on the My Dhanush platform, we need to understand what the MTF pledge is. 

SEBI (Securities and Exchange Board of India) has made the MTF pledge a compulsory process for users to leverage MTF. To use MTF to buy shares, you need to pledge the shares first in order to hold the position.

If you want to avail MTF, you need to pledge MTF on the day itself. If, in any case, you are unable to authorise the pledge, the shares will be squared off. Upon pledging by submitting your PAN and demat account details, you will get an email or SMS confirmation, and you will be redirected to the CDSL portal. 

After the process is completed, you can easily select the shares and use MTF for your trading. 

How do I use MTF with Dhanush?

Using the margin trading facility with Dhanush is simpler than it sounds. Let’s break down the process into some steps.

  • Step 1: To use MTF on Dhanush, activate MTF through the re-KYC process on the portal.
  • Step 2: After activation, simply log in to your account. Select the stock you want to invest in and click on Buy to proceed. (Only Group A stocks are eligible for MTF on Dhanush).
  • Step 3: On the Buy page, select the MTF option from the order type section. 
  • Step 4: Put the number of shares and price you want to buy and confirm.
  • Step 5: On the same day, you will receive a link from CDSL to authenticate the shares you’ve bought through MTF. Enter your PAN before T+1 (11 a.m.) for MTF confirmation to avoid liquidity.
  • Step 6: Next, verify the shares you’ve bought on MTF by clicking on the checkbox. Generate and enter the OTP received on your registered mobile number.
  • Step 7: That’s it! The MTF transaction is now successfully completed.

Note: Dhanush charges 18% p.a. on MTF transactions. 

Bottom line

While most swing traders and BTST (Buy Today, Sell Tomorrow) use a margin trading facility, this approach is helpful for any short-term price volatility. It is a powerful tool to grab the ideal opportunity amidst the market swings, especially when you are low on funds and don’t want to miss the chance.  

As a top trading app in India, Dhanush offers up to 4x leverage and access to 900+ stocks. On top of that, you can also get access to the margin amount estimator before placing the order. 

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Is MTF trading profitable?

The margin trading facility can magnify both profit and loss. It depends on how the stock price is going to swing and your risk appetite. It is important to approach the margin trading facility with proper risk management and investment strategy.

Is MTF trading legal in India?

Yes, MTF trading is legal in India. Under SEBI’s supervision, investors can enter a trade using MTF, placing a margin (cash and non-cash securities in the Demat account) as collateral with the broker. Only Group A stocks are allowed to be traded using MTF as of now.

Can I sell MTF shares the next day?

Yes, you can sell all of your MTF shares the next day that you bought them the previous day at the NAV calculated at the end of that day.

How do I sell my MTF order?

You can sell your MTF order easily using Dhanush or your daily investing app. All you have to do is head to your position and select the sell order. Make sure the product type is an MTF order before selling. 

Is MTF trading safe?

Yes, MTF trading is safe and approved by SEBI-registered brokerages. Since these brokers are registered with SEBI, they are subject to scrutiny by the exchanges. 

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