MTF vs MIS - Difference Between Margin Trading and Intraday

In the fast-paced world of stock trading, leveraging capital efficiently is the key to maximizing your returns. Among the tools available to traders in the Indian Stock Market, Margin Trading Facility (MTF) and Margin Intraday Square-off (MIS) are two commonly used mechanisms that offer enhanced buying power. 

What is MTF?

MTF means Margin Trading Facility, which is an investment tool option that allows investors to increase their purchasing power by borrowing funds from a broker. In this arrangement, the investor contributes a portion of the capital, while the broker provides the remaining amount. 

Here, the securities bought with the borrowed funds serve as collateral for the loan. Therefore, during the margin trading period, the investor is required to maintain a specified margin. If the margin falls below the required threshold, the broker will issue a ‘Margin Call,’ which may result in requesting additional funds to meet the margin requirement or the sale of shares they’ve purchased using MTF

Advantages of MTF

1) Purchasing Power:

Margin Trading Facility will boost an investor’s buying power, giving them access to larger market opportunities. This can lead to higher profits compared to what they could earn with their own capital alone. 

2) Premium Stocks:

MTF allows investors to purchase expensive, blue-chip stocks that they might not be able to afford with their own capital. This opens up opportunities to own shares of the leading companies by investing only a fraction of the stock’s actual value. 

3) Diversify: 

With this facility, investors can buy stocks across different companies using partial upfront capital, allowing them to diversify their portfolio more effectively. This helps spread risk and maximise opportunities, even with limited funds. 

Disadvantages of MTF

1) Elevated Loss Potential:

While leverage has the potential to enhance profits, it also increases the risk of significant losses. If the market moves unfavourably, your losses can surpass the initial investment, resulting in substantial financial setbacks. 

2) Financing Charges:

When borrowing funds through margin trading, interest charges will accumulate, and this can reduce your profits. This impact is especially prominent during extended market downturns, where the cost of borrowing becomes a heavier burden. 

3) Threat of Asset Liquidation:

Failure to meet margin requirements or maintain adequate funds can lead to a forced liquidation of positions by the broker. This can result in the sale of assets at unfavourable prices, amplifying losses even more. 

What is MIS? 

MIS, an acronym for Margin Intraday Square-off, is a trading option that offers leverage specifically for intraday trading, i.e, executing trades within a day. It allows traders to take big positions using relatiely small capital, making it ideal for those to capitalize on short-term price movements.

However, all positions under MIS must be closed by the end of the trading day, as they cannot be carried forward. But, if a trader fails to close their position manually before the market’s cut-off time, it will be automatically squared off by the system. 

Advantages of MIS:

1) Bigger Position Size: 

MIS provides traders with higher leverage, allowing them to take larger positions using a smaller amount of capital. This can boost potential returns from intraday trades, making it an effective tool for capturing short-term market opportunities. 

2) Two-Way Trading: 

With MIS, you can buy and sell or sell and buy within the same day. This gives you more flexibility compared to MTF, which only allows buying first. 

Disadvantages of MIS

1) Greater Exposure to Losses:

The high leverage offered by MIS not only increases profit potential but also elevates losses. If the market moves against a trade, losses can accumulate quickly, making it crucial for traders to implement strong risk management strategies when using MIS for intraday trading. 

2) Auto-Exit Mechanism:

?MIS (Margin Intraday Square-off) orders are automatically closed by the broker before market close, which can result in losses if the market moves unfavorably, especially in volatile conditions where positions may not recover in time. 

However, traders can convert buy positions to delivery by paying the full margin, allowing them to carry the position forward to the next day. This conversion must be done before the broker's specified cutoff time, typically around 3:20 PM for equities. ? 

MTF vs MIS

Now that we have understood the pros and cons of MTF and MIS, let us examine the major differences between these two concepts in depth. 

MTF and MIS Charges

Understanding the charges associated with MTF and MIS is crucial. So, here is a breakdown of the costs involved with each facility at Rupeezy. 

When Should You Use MTF and MIS

MTF and MIS serve different trading needs. If you are not sure when to use MTF and MIS, we have explained the situations where each might work best for you. 

Use Case of MTF:

• For longer holding periods:

MTF is suitable if you want to invest in stocks and hold them for several days, weeks, months, or even years, allowing you to benefit from medium to long-term price appreciation.

• When you need leverage for delivery trades:

If you are confident in a stock’s performance but lack full capital, MTF enables you to take delivery of shares by paying only a part of the total value upfront.

Use Case of MIS:

• For same-day trading and quick opportunities:

MIS is ideal when you plan to trade stocks within the same trading session to capture short-term market movements. Also, if you want to make the most of intraday price fluctuations with limited capital, MIS offers higher leverage and faster execution benefits to you.

• To avoid interest costs:

Since MIS positions are squared off before the market closes, there are no overnight holdings, and thus, no interest charges apply, which helps reduce overall trading costs.

How to Avail MTF?

In order to make use of MTF, follow these easy steps that are given below:

Step 1: Start by opening a demat account with Rupeezy if you already do not have one.

Step 2: Browse through the Rupeezy app or website and select an MTF stock, which is a stock available on margin

Step 3: Tap the ‘Buy’ button and enter the quantity of shares you want to purchase.

Step 4: Choose the MTF option to proceed with your margin trade

Step 5: Pay as low as 20% of the total trade value, and Rupeezy will fund the remaining amount. The margins that are provided by Rupeezy will vary depending on the stock and can go up to 80% of the total trade value.

Step 6: Now, easily track your MTF trades in the ‘Positions’ section of the app or website, where you can monitor leveraged positions, outstanding margins, and performance, which are kept separate from your regular holdings. 

How to Avail MIS?

In order to make use of MIS, follow these easy steps that are given below:

Step 1: Start by opening a demat account with Rupeezy if you already do not have one.

Step 2: Browse through the Rupeezy Trading App or website and select a stock according to your needs.

Step 3: Click on the ‘Buy’ button to see if the share is eligible for MIS, which can be determined if the Intraday option is available.

Step 4: If yes, you can now proceed to buy the stock with the benefit of MIS. 

Conclusion

In conclusion, MTF and MIS cater to different types of traders. MTF is best suited for those looking to leverage funds for long-term investments, though it involves interest charges and margin requirements. MIS suits intraday traders who seek higher leverage without interest but must square off positions by the end of the day. 

As both options provide different benefits and challenges, the option of choosing the right choice depends on your trading style. Whether you are in it for the long run with MTF or prefer the rapid pace of intraday trading with MIS, ensuring a strategy that matches your financial goals is the key to navigating these facilities successfully.