Margin Trading Facility (MTF) is a facility approved by the exchange and given by brokers, which allows investors to buy stocks by paying only part of the total value. The broker will fund the remaining amount as a loan and will charge interest on this.
For example: - You want to buy ‘XYZ’ shares worth ₹ 100 using MTF and if the MTF margin required for XYZ is 25% then, the leverage allowed on this stock will be 4 times (100/25). Thus, you need to pay only rupees 25 (25% of the 100) and the remaining ₹ 75 will be covered by the Jainam as a loan to you.
BENEFITS OF MTF: -
Higher buying power: -The investors with limited capital can also purchase stock requiring more capital.
Higher Profits: -The potential of earning more profits increases with MTF because of access to more capital.
Cost of Interest: - While buying with the MTF facility, the investor has to pay interest on the borrowed funds to the broker. This interest cost can be very high in some cases if the MTF positions are held for an extended period.To know more see, How much interest is charged on MTF Funding at Jainam?
Higher Losses: - Like any buy and sell transaction, if the stock price falls, there will be losses. However, with Margin Trading Facilities (MTF), losses can be larger due to the interest paid on MTF.
Liquidation Risk: - If the value of the investments of the investors drops and there is a margin requirement involved with that and if the investor doesn’t have the required funds on time, then the broker will automatically square off your positions. This is known as liquidation and any losses that will arise due to liquidation are not the broker’s responsibility.
MTF is applicable for purchasing in the equity segment only. MTF cannot be used for trading in the F&O, Currency, and Commodity segments.
Once client’s MTF facility is activated, Jainam will fund to client for his purchase of shares if following conditions are fulfilled :- 1. If client has purchased MTF Approved security, 2. If client has maintained required margin in form of Cash or Non-cash prior to purchase of security, 3. If client has placed Buy order with MTF product, 4. If client has not breached per client sanction limit amount.
