Table of contents
- An Overview of MTF – What Is Margin Trading Facility?
- What Are the Margin Trading Regulations and Requirements in India?
- How Does It Work – Understanding the Benefits of MTF
- Tips to Open Margin Trading Account to Avail of MTF
- A Step-by-Step Guide to Open a Margin Trading Account – What Should You Follow?
For a youngster, this stock market offers ample opportunities. So, have you ever availed of the opportunity to make money by purchasing stocks with limited cash? Suppose you have limited funds and still want to make a particular investment. In such scenarios, MTF or Margin Trading Facility comes into the forefront. So, are you ready to invest with limited cash? Let’s first understand everything about MTF before you use it.
An Overview of MTF – What Is Margin Trading Facility?
Margin Trading Facility is the MTF full form. Investors can buy stocks by paying an amount from the total. MTF lets you make trades that are worth 4x of your purchasing power.
Let’s assume that you want to purchase shares. However, you have a small amount of money. With MTF, you can get additional funds to buy shares. You can back the money later with a small interest fee. It offers a more significant investment, even when you don’t have enough cash.
What Are the Margin Trading Regulations and Requirements in India?
India is a country where margin trading is subject to some regulations that SEBI imposes. Brokers offer certain MTF trading facilities that follow these regulations. That way, it ensures investors or traders get trading protection as well as market stability.
As of now, SEBI has set the minimum eligibility criteria for entities and individuals who take an interest in margin trading. The criteria list is mentioned below:
- A minimum requirement for net worth
- Compliance with the capital adequacy norms
- A clear track record
In addition, brokers need to have separate client accounts for margin trading. According to SEBI, brokers need to offer certain documents for investors to understand the associated risks.
How Does It Work – Understanding the Benefits of MTF
Do you wish to learn how MTF benefits you? If yes, it’s time to get an understanding from the following points:
- Get higher returns: MTF in stock market can improve the percentage return on the amount deployed with little money.
- Improved purchasing power: It improves the buying power of investors even when there’s a shortage of funds
- Improve investment portfolio: MTF in stock market can also diversify your investment portfolio. You can take different positions in different sectors and stocks.
- Advantages for Tax: In a nation like India, interest paid on the margin debt happens to be tax-deductible. The tax benefit may help balance expenses associated with margin trading.
- IPO Funding Access: Multiple trading accounts increase your eligibility for IPO funding. Did you know even a few brokers provide funding assistance to margin clients? This helps them apply for the IPO shares without merging all capitals.
- Short Selling Opportunities: Margin accounts offer the ability to engage in short selling, which means you can profit from a decline in stock prices.
- Trading Flexibility: MTF provides the required flexibility that traders or investors need to execute their trading methodologies. Some may prefer swing trading, while others love day trading or long-term investing. Access to the trading strategy of your choice improves its effectiveness.
Tips to Open Margin Trading Account to Avail of MTF
So, you might be excited to learn about the steps to activate MTF, right? But before that, this post will help you understand the easy tips to open your margin trading account. For this reason, you need to find a registered broker. Here’s what you should follow to proceed further:
Selecting the Broker
Your foundation step is to perform your survey to find the best brokerage firm in India that provides excellent MTF services. When you intend to choose a broker, ensure that you choose someone reputable. The service provider should offer an intuitive platform. The broker should have a track record in this field. Remember, a professional service provider can assist you in activating MTF in easy steps.
Assessing the Eligibility Criteria
Before you activate MTF, it is imperative to check the eligibility criteria. Note that different brokers have different criteria. However, you need to be of legal age to open the account. In addition, you need a minimum net worth that suits your broker’s standards related to risk assessment.
A Step-by-Step Guide to Open a Margin Trading Account – What Should You Follow?
Mentioned below are the steps to activate a margin trading account. Read on to learn the steps in brief:
Fill Out the Form
After you find a reliable broker, it’s time to visit the official website. Now, fill out the form to open the account. You must follow the instructions. You must include documents such as the following:
- KYC information
- Aadhaar card
- PAN card
- Bank account details
After this, you must submit the documents for them to be verified.
Funding the Account
The next step is to fund the account as soon as the documents are verified. The broker will verify the details first. Then, you need to deposit a certain amount into the account. The amount will be used as the collateral for margin trading. That will activate your margin trading facility.
Signing the Agreement
In the last step, you must sign the broker’s margin agreement. Ensure you have the broker’s details and be sure that it is an authorised broker. Carefully read the terms & conditions of margin trading, including the risk disclosures and interest rates.
After you provide your documents, you are required to wait for some days. The selected company reviews the application to activate MTF. The process may take a few days.
Receive the MTF Limits
Once your account is approved, you get MTF limits assigned to your account depending on the risk profile and financial standing. The limits are the representation of the maximum amount you may borrow from the broker for making margin trades. This ensures a seamless activation of MTF.
Start Margin Trading
Understand margin risks before you begin to trade on the margin. Note that margin trading may have profits or losses, so you need to have the right skills to understand the opportunities and risks accordingly. After you understand the risks, you may start trading. Long into the trading account and check the MTF limits before executing margin trades.
MTF is a loan, so there will be a small interest rate associated with the process. Traders and investors must pay 0.049% every day from the second day until the position is squared off. Besides interest payment, raising a request to Unpledge or Pledge is also chargeable. It costs ₹20/- in addition to the GST applied per scrip.
MTF is for online and offline accounts.
The margin requirements when trading under MTF may differ from one scrip to another.
Yes, DP charges are also applicable when you use MTF.
After your MTF request is approved, you get the link from CDSL on the same day. It’s sent to your email address or phone number.
According to the margin trading facility NSE rule, an investor needs to pay a part of the total amount of ₹1 lakh to the respective broker when they place the purchase order.