uTrade Algos
When you step into the world of trading, one key term you’ll often encounter is margin—the capital you need to keep in your account to open and maintain positions. For many traders, especially those looking to amplify their buying power using leverage, the Margin Trading Facility (MTF) at Share India can be an option worth considering. MTF allows you to trade with a margin or leverage, meaning you can take larger positions than your available capital balance.
However, with this power comes responsibility. Understanding the margin requirements for MTF is essential to managing your risks and avoiding unexpected calls or unexpected square-offs. In this Share India MTF guide, we’ll break down how margins work in MTF, helping you trade smarter and more confidently.
Table of Contents
Decoding Margin Trading Facility
MTF or Margin Trading Facility is a leverage-based facility that allows investors to buy shares by paying only a fraction of the total transaction value upfront. The remaining amount is financed by your broker. This means traders can take larger positions in the market by borrowing funds from their broker.
However, MTF is available only for select approved securities and comes with a predefined interest rate on the borrowed amount. The purchased shares are usually held as collateral by your broker until the investor clears all outstanding dues.
How MTF Works?
Example: Basic Use of MTF
- Mr. Arjun wants to buy shares worth ₹1,00,000 but has only ₹50,000.
- He opts for Margin Trading Facility (MTF) from a broker.
- With a 50% margin requirement, he contributes ₹50,000 from his own funds.
- The broker funds the remaining ₹50,000.
- Shares worth ₹1,00,000 are purchased and held as collateral by your broker.
- Mr. Arjun is charged interest on the borrowed ₹50,000 until it is repaid.
What Are MTF Margin Requirements
MTF margin refers to the amount of money or approved securities that an investor deposits to initiate and maintain trades under the Margin Trading Facility at Share India. This margin represents your contribution toward leveraged positions and helps determine the extent of funding your broker can offer.
Maintaining a sufficient margin is essential. If the margin falls below the required levels, it may trigger a margin call or other actions from the broker as per regulatory and internal policies.
These requirements apply not only at the time of purchase, but also when:
- Your MTF holdings lose value (MTM losses)
- Share India’s RMS raises a margin call
Breakdown of MTF Margin Calculation
The margin required to avail the Margin Trading Facility (MTF) at Share India is calculated based on regulatory guidelines, using the following formulas:
- Non F&O Stocks: Stock’s VAR (Value at Risk) + 5 times the Stock’s ELM (Extreme Loss Margin)
- F&O Stocks: Stock’s VAR + 3 times the Stock’s ELM
Note: Share India charges a minimum margin of 20% against all MTF positions to ensure you are adequately covered for your trades.
Consequences of Failing to Maintain Margin
Failing to meet your margin obligations under MTF can lead to certain actions initiated by your broker’s risk management system. These actions are designed to manage risk and prevent further exposure. Here’s what may happen:
- Liquidation of MTF Holdings: Your open MTF positions may be squared off to recover the margin shortfall if timely payments are not made.
- Square-off Orders During Volatility: In periods of high market volatility, brokers may issue square-off orders on short notice, in line with their internal risk protocols and regulatory guidelines.
- Increased Financial Risk: Liquidation could take place at unfavourable market prices or times, which may reduce control over the exit of your trades.
Ways to Meet Margin Obligations
To continue holding your MTF positions, it’s important to meet margin requirements on time. You can do this by:
- Paying the margin shortfall in cash, or
- Pledging approved securities from your Demat account to cover the required margin.
Additionally, different brokers may have specific policies or alternative methods for fulfilling margin obligations, so it’s advisable to refer to your broker’s guidelines for complete clarity.
To know where to check your margin requirements on Share India, refer to this FAQ:
Other Responsibilities When Using MTF
Besides the minimum margin for MTF, there are additional obligations you should be aware of when trading under the Margin Trading Facility (MTF):
Marked-to-Market (MTM) Losses:
MTM losses are the daily unrealised losses calculated as the difference between the purchase price of your stock and its current market price. If the stock price drops below your buy price, this loss needs to be covered to maintain your MTF position. Paying the MTM loss helps ensure that your margin stays within the required limits.
Interest on Borrowed Amount:
Since MTF involves borrowing funds from your broker, interest is charged on the borrowed portion. This interest accumulates and adds to the overall cost of using the facility. It’s important to factor in this expense when planning your trades.
Meeting these obligations—upfront margin, MTM losses, and interest payments—is essential to managing your MTF positions and avoiding potential liquidation.
Conclusion
MTF can be a useful tool to access additional trading funds, but it’s important to stay informed about its risks, margin requirements, interest, and other obligations. By understanding these factors and meeting your margin obligations on time, you can avoid getting margin calls, manage risks effectively, and stay in control of your trades when using the facility at Share India.