How to Use MTF in Stock Market

When I first used MTF (Margin Trading Facility), I thought it was an easy way to boost returns. But I gradually realized that MTF is a powerful tool, not a risk-free one. Today, the use of MTF is growing rapidly in India, and many brokers are offering the facility to buy shares with up to 50% margin. Used correctly, MTF can increase your buying power, but with a lack of understanding, it can also amplify losses. In this guide, I will share my experience and explain how to use MTF wisely and safely.

What Is MTF (Margin Trading Facility)?

MTF, or Margin Trading Facility, is a tool that allows you to buy stocks even if you don't have the full amount of money. With MTF, you only pay a portion of the total value (the margin) from your account, and your brokerage firm lends you the remaining amount. You are required to pay interest on this borrowed amount daily.

How MTF Works in the Indian Stock Market

In MTF (Margin Trading Facility), you don't pay the full price of the share. When I use MTF for a stock, I only invest a portion of the amount (the margin), and the brokerage firm lends me the rest. In return, I have to pay daily interest on the borrowed amount. The shares remain in my Demat account, but they are pledged until the full amount is repaid.

Understand MTF with an example 

Similarly, if the share price falls by 10%, the loss will also be on the entire Rs.1,00,000.

How to Use MTF: Basic Structure Every Beginner Must Understand

To use MTF effectively, it's essential to understand what happens before, during, and after placing a trade.

Step 1: How to choose the right stock for MTF

First, check if the stock is on the MTF-eligible list.

Stocks considered suitable for MTF are those that have:

• Good liquidity

• Not too much volatility

• Belong to the large-cap or strong mid-cap category

Stocks with high volatility carry a higher risk of margin calls.

Step 2: How to Place an MTF Order (Buy Process)

When buying in MTF:

• Select the stock in the trading app.

• Choose MTF as the order type (not Cash).

• Enter the quantity.

• The system will automatically display the required margin and broker-funded amount

Step 3: What happens to the shares after you buy them?

• Shares are credited to the demat account.

• The shares are automatically pledged.

• The pledged shares remain with the broker as security.

The pledge remains in effect until the broker's money is repaid or the shares are sold.

Step 4: How is interest calculated in MTF?

The broker charges daily interest on the funded amount.

Example:

• Funded amount = Rs.80,000

• Interest ~10% per annum

Daily interest is approximately Rs.22 per day. The longer the holding period, the higher the cost.

Step 5: How is MTM (Mark-to-Market) calculated?

In MTF (Margin Trading Facility), profit and loss are calculated on a daily basis.

Example:

• Buy price = Rs.1,000
  Current price = Rs.950

• Loss = Rs.50 × quantity

The Mark-to-Market (MTM) calculation is done on the entire trade value, not just the margin.

Step 6: The margin and maintenance margin are calculated.

The most confusion in MTF arises regarding the margin. If this section is understood clearly, the risk of margin calls and forced losses can be controlled to a great extent.

What is Initial Margin?

Initial margin is the money that needs to be paid upfront when placing a trade.

This margin can vary depending on the stock and the broker's rules.

• Typically, it's 20%, 25%, or 50%.

• High-quality, stable stocks usually require a lower margin.

• Volatile stocks require a higher margin.

What is the Maintenance Margin?

Maintenance margin is the minimum margin level that must be maintained in the account while a trade is open.

• This margin changes daily with price movements.

• Stock price falls ? margin level decreases

If the margin level falls below the required limit ? a margin call is issued.

Step 7: When does a margin call occur?

A margin call is a normal risk-management alert in futures trading, not an emergency, but ignoring it can be dangerous.

A margin call occurs when:

• The stock price falls.

• The account's available margin drops below the maintenance margin.

• The broker believes the risk is increasing.

Margin Call Aane Par Available Options

1. Adding Additional Funds: The margin level can be restored by adding extra cash to the account.

This option is useful when the stock is strong, and price recovery is probable.

2. Selling a Partial Quantity: Risk can be reduced by selling a portion of the position.

This results in :

• A lower funding amount

• Reduced margin pressure

3. Exiting the Full Position: When the stock trend is clearly negative, or the loss tolerance limit has been exceeded, in this case, a full exit is better for capital protection.

Step 8: How to exit a trade on MTF Trade

The exit process for MTF trades is simple, but it's important to understand it clearly to avoid any confusion.

What Happens When a Sell Order is Placed?

• A sell order is placed in the trading app (against the MTF position).

• As soon as the order is executed, the shares are sold in the market.

• The sale value is received by the broker from the exchange.

How Does the Broker Adjust the Amount?

After the sale, the broker performs an automatic settlement:

1. Funded Amount is Adjusted: The money funded by the broker through MTF is adjusted first.

2. Interest Charges are Deducted: Any interest accrued based on the holding period is automatically deducted.

3. Remaining Balance is Credited to the Account: If there is a profit, the net profit is credited, If there is a loss, the remaining amount after adjustment is credited.

Corporate Actions in MTF Trades

In MTF trading, the focus is mostly on price movement and margin, but ignoring corporate actions can be a big mistake. Since MTF is a leveraged position, the impact of corporate actions is more significant compared to normal delivery trades.

Bonus Shares: What Happens When Bonus Shares are Issued in MTF?

If a stock is held under MTF and the company announces bonus shares :

• The benefit of bonus shares goes to the investor.

• Just like the original shares are pledged, the bonus shares also become pledged.

• The share quantity increases after the bonus issue, but the overall value remains the same.

After the bonus issue, the stock price adjusts, which affects the margin calculation. Therefore, it is important to monitor the margin level around the ex-bonus date.

Stock Split: What is the Effect on Margin?

In a stock split:

• The quantity of shares increases.

• The per-share price decreases.

In the case of MTF:

• The total position value remains the same.

• The margin requirement is recalculated.

• The broker's system automatically adjusts the quantity and price.

Dividends: Who Receives Dividends in MTF?

There is an important confusion regarding dividends.

If the shares are in the demat account before the ex-dividend date, then the dividend goes to the investor, even if the shares are pledged. The dividend amount is credited directly to the bank account.

However:

• The stock price adjusts after the dividend.

• Due to the price adjustment, the MTM and margin level may be temporarily impacted.

Rights Issue: How are Rights Handled in MTF?

The rights issue is a somewhat sensitive topic in MTF:

• The rights entitlement goes to the investor.

• However, fresh funds are required to subscribe to the rights.

• MTF funding is generally not available for rights shares.

How to Use MTF Safely

Using Full Margin Can Increase Risk :

Using a full margin in MTF (Margin Trading Facility) unnecessarily increases risk. Even a slight drop in price can quickly lead to margin pressure. Therefore, maintaining a margin buffer is always considered a safer approach.

Right Stock Selection Matters More in MTF : 

Only stocks with controlled price movements and strong liquidity are suitable for MTF. Stocks with weak fundamentals or high volatility do not provide stability in leveraged positions and increase the chance of a margin call.

Speculative and News-Based Stocks Are Unsafe for MTF : 

Stocks driven by news often experience sudden, sharp movements. Such movements can quickly damage capital in MTF, so it's crucial to avoid speculation when using MTF.

Position Size Should Be Smaller Than in Cash Trading : 

Since leverage already increases risk in MTF, it's better to keep the position size smaller compared to cash trading. A controlled size keeps losses manageable and allows time for decision-making.

Discipline Provides Long-Term Safety in MTF : 

Success in MTF comes not just from strategy, but from discipline. Following stop-losses, avoiding overtrading, and controlling emotions are essential to making this tool safe.

Common Beginner Mistakes While Using MTF

Treating MTF as Pure Leverage Trading : 

Many beginners mistake MTF for futures or heavy leverage trading. This leads to increased position sizes, and even small price movements can result in significant losses. MTF should be used for support, not as a replacement for other trading methods.

Ignoring Interest and Holding Costs : 

In MTF, profit is not solely determined by price movement, but also by the interest cost. Beginners often fail to calculate the daily interest and total holding cost, resulting in net returns that are significantly lower than expected.

Overconfidence After 1-2 Profitable Trades : 

After a few profitable trades, confidence can suddenly soar. This is where the risk increases, as discipline is lost and margin is misused.

Not Tracking Daily Margin and MTM : 

In MTF, the margin is not static. The margin level changes with price fluctuations. Failing to track daily MTM and margin status can lead to unexpected margin calls.

Not Learning from Mistakes : 

The biggest mistake is not reviewing the process after a loss. Only traders who understand their MTF mistakes and improve their approach can truly utilize this tool effectively in the long term.

Benefits of using MTF with Rupeezy

• Rupeezy offers up to 5x margin facility on MTF

• Trade by investing only 20% of the total share value

• Daily interest rate of approximately 0.03% on MTF, keeping costs under control

• Over 1800 stocks available for MTF trading

• Clear and real-time information on margin, interest, and MTM

• Simple platform, making it easy to use MTF safely and intelligently

Conclusion

MTF is an effective trading facility that offers better opportunities with limited capital, but its successful use requires understanding and discipline. Selecting the right stocks, having a clear understanding of margin requirements, and effective risk management are key to success with MTF. When used with the right platform and a controlled strategy, MTF can make trading more efficient and balanced.

FAQs

Q1. What does MTF mean in the stock market?

MTF is a facility that allows you to buy shares of higher value with less money, with the remaining amount provided by the brokerage firm.

Q2. Is MTF good for beginners?

Yes, but only if the stock is strong and the margin is kept within limits.

Q3. How much margin is usually required in MTF?

Typically, 20% to 50%, depending on the stock and the brokerage firm.

Q4. Do brokers charge interest on MTF?

Yes, interest is charged daily on the funds provided by the brokerage.

Q5. What happens if the stock price falls?

If the share price falls, the margin decreases, and a margin call may be issued.