What is MTF in Share Market? How to Use MTF? Should You Use MTF?

Hello Everyone, I'm glad that you are here to get to know some information about the Indian stock market and want to get some awareness of the MTF Product. In this article, you will get informed that what is MTF Product in the Stock Market? How to Use MTF Product? Should You Use MTF Product?


What is MTF in Share Market?

If you are a trader in the stock market then definitely you would have heard a word called MTF, may you would have heard it from your broker or any other sources like from the Internet.  And if you are willing to know what is MTF then you are at the right place.

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All About MTF Product in Stock Market

MTF stands for Margin Trading Facility, some people call it Margin Trading Funding too. If I have to explain it very simply to you or anyone then I will say that MTF is a loan that you take from your broker against your stocks or funds. For example, you have 10 lacks in your trading account and have a portfolio valued at 15 lacks. Combine your trading account fund and your portfolio value, which will be called collateral value. In this example, your collateral value is 25 lacks. Now, your broker will give you the loan amount to you on your collateral value.


But How Much They Will Give You a Loan on Your collateral Value?

It depends on which stock you want to buy from the share market. SEBI has a rule for this, SEBI says, Exchange will decide how much brokers can fund to anyone in any particular stock. Exchange decides VAR Margin for every single stock which is currently trading in the share market. This VAR Margin changes 5 times in a single day. Now you must be thinking that what is VAR Margin?


What is VAR Margin?

This is a very important and crucial point in MTF. All the funding depends on it. VAR stands for Value at Risk. You don’t have to go in deep about VAR Margin and How it is decided by the Exchange. VAR Margin varies between 20% to 100% for any share. Now let's understand How it works from an easy example.


You want to buy 1000 shares of Reliance Industries and Reliance is currently traded at rupees 2500 that means you will need 25 lacks for this executing this trade. And let's say, reliance VAR Margin is 20% then calculate 20% of total trade value, here we will take 20% of 25 lacks which is only 5 lacks. So the conclusion is, You will only need 5 lacks rupees for taking the 25 lacks valued trade.


But What if You Don’t Have a Balance in Your Trading Account?

If you don’t have a balance in your trading account and you wish to make a trade then you must have a portfolio. Yes, you can buy shares against your shares. Imagine you have shares of PayTM in your portfolio and your portfolio's current value is 10 lacks. Now, you have to take a look at How much PayTM's VAR Margin. Let's say it's 50%.

In this situation, your portfolio (you have only PayTM) value is 10 lacks and PayTM's VAR Margin is 50%, Now calculate 50% of your stock value which is 5 lacks. In conclusion, You can make a trade of rupees 5 lacks. Remember 5 lacks is the required VAR Margin amount that you will pay for buying a stock. You can still buy more than 5 lacks depending on that particular share's VAR Margin that you are willing to buy, as I explain in the reliance example above.


How Much Time You Have to Return This Funded Amount?

Make it clear in your mind this is a loan amount that is landed by your stockbroker to you on the collateral value. So you have to retune it one day. Now here is a question arising in our mind that how can you return it and when do you have to return it?

This Loan amount returning times depends on your stock broker policy for example If you have your trading account with a full-service broker like Anand Rathi Stocks Broker then you can return it within 90 days but If you have your trading account with a discount broker then you have only 7 days to return it. PLEASE NOTE, please ask your RM or customer care about this.

There is one more benefit with full-service brokers, you can carry your debit or loan amount 90 days but if you take any trade within this 90 days cycle then this cycle will restart from that day. This means you can hold your positions for unlimited time. But please check your MTF position daily and note your MTM (Market to Mark) amount which is not demandable by the broker. A broker like Anand Rathi will demand money only if your MTM has crossed a particular loss percentage which you can ask your RM or customer care.


How can you return it?

As I told you above you can pay the only required MTM amount and hold your positions as long as you want. If you want to clear the whole debt amount then you can pay your debt balance by cash transfer in your trading account or you can square off your positions too.



But wait, Why the brokers are doing this thing?

Before using this MTF Product for taking any trade you should know that why your broker is risking its money? Your broker will get two things, the first one is Brokerage and the second thing is Interest. If you trade with this additional loan amount means you are doing more turnover comparing your normal (CNC) trade therefore the broker can charge more brokerage from you.

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High-Interest Rate and Additional Brokerage

Your broker will charge you 18% interest per annum on the total debit balance which is payable on a monthly basis. Please note this, If you do big trades and big turnovers then this interest rate is negotiable or you can commit a minimum brokerage amount to your broker which you will give on monthly basis.

That is all I have for you regarding the MTF Product, please comment down if you have any issues related to MTF or any other issue in the share market.

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