Explained: What are the advantages of marginal trading facility or MTF
Margin Trading Facility is an exchange approved product. It's a safe and secure product that lets investors purchase more stocks with the limited capital. It involves borrowing money from a brokerage to purchase stocks and repaying the capital with interest later. This method is often referred to as leverage trading, amplifies returns but carries risks associated with market fluctuations.
Increased Purchasing Power: Margin Trading Facility enables traders to increase their purchasing power. It addresses the challenge of insufficient capital by allowing investors to take larger positions with only a fraction of the trade value paid upfront. By allowing investors to borrow funds to purchase securities, opens up opportunities to engage in bigger trades than otherwise possible with their available cash alone.
Margin Trading Facility improves the possibility of profits as well as empowers traders to capitalize on promising market opportunities without having to liquidate their current holdings. For example, assume you want to place a trade for Rs 30 lakh (buy 2,000 quantities of XYZ Ltd. for a share price of Rs 1,500). You will need to maintain a margin of Rs 6 lakh against broker’s 80% funding of Rs 24 lakh. Now assuming the stock moves up by 20%, your profit is a whopping Rs 6 lakh. But if you had not taken the funding, then you would have bought only 400 shares and your profit would be limited to Rs 1.20 lakh.
Enhanced Flexibility: Conventional trading often requires investors to have substantial liquid funds to
