Stock Trading demands dedicated time and capital, especially if you are a professional trader. The timely availability of capital is also crucial for trading success. Therefore, traders utilize the margin trade funding (MTF) provided by their stockbrokers. The margin facility is a leverage provided to traders to magnify their positions in the quest for higher profits.
In Margin Funding, investors can buy shares by giving a marginal amount of the actual value of the shares. The investor can pay the margin money to the broker either in cash or by collateralising his/her demat securities.
While availing of the margin trading facility, investors need to understand the additional terms and conditions, ensuring that they are aware of the risk and rewards.
To opt for the MTF you need to open a demat account first.
SEBI and the Exchange pre define the securities that are allowed under MTF.
Six Key features of MTF for Investors
Some of the key features of margin funding in delivery trades are:
- If traders do not have enough money, they could lose a good investment opportunity to earn profits. With MTF, they can buy the desired stocks and make profits even if they don’t have the full transaction amount.
- MTF also allows you to amplify your investment capacity, which will help you to take more positions with the same available cash as against simple delivery orders.
- If you take a margin trade, brokers allow you to repay the remaining amount of the transaction within a specific number of days, as in case of Bajaj Financial Securities Trading Account, client can carry position for up to 365 days. If your stocks appreciate in value and you want to exit the position, you can square off the position to take the profit and pay the interest to the broker for the duration over which the MTF order was open.
- SEBI allows traders to pledge their existing demat shares as collateral to pay margins to the broker. Thus, you can utilize your demat shares to make further profits.
- Since a trader needs to pay a part of total transaction value, margin trading funding helps an investor increase their return rates, provided the trade goes as expected.
- The Securities and Exchange Board of India (SEBI), and stock exchanges monitor the margin trading funding services provided by the stockbroker.
Recently, the capital market regulator SEBI has revised the margin requirements to protect the interest of traders. The equity margin rules have been revised to limit risk by restricting brokerages from providing excessive leverage. The idea is to protect retail investors from unsolicited risks.
Under the recently adopted peak margin policy, SEBI has increased the upfront margin requirements to 100%. It has been done to prevent large-scale speculative trading practices that may result in huge losses.
Special Brokerage Packages for Traders
It is important to choose a broker who gives adequate facilities for margin trading to their clients.
Subscription packages with leading stockbrokers like Bajaj Financial Securities Ltd (BFSL) enable you to avail margin facility at a lower interest rate.
One of its special trading packages is the Bajaj Privilege Club (BPC). It is a premium membership for Demat & Trading Account holders of BFSL, which extends a wide range of offerings for those who aspire to stay on top of the market.
MTF at a low-interest rate improves the margin of profits if your trade is aligned with the market trends.
- BFSL MTF interest rate for BPC subscribers is as low as 8.5% per annum (one of the lowest in the industry) with an economical brokerage rate of Rs.5 per order across equity cash and derivative segment. .
- BFSL clients who are BPC subscribers also enjoy a long-term carry forward term. They can carry forward a margin trade for 365 days.
MTF Risk Considerations
Even though Margin Trading Funding has many benefits, an investor should understand its risks also.
An investor could lose more than he bargained for. It is the case when the market trends do not support your trade.
Not only this, the investor will have to maintain a minimum balance in their MFT account. If you do not meet the minimum balance requirements, the stockbroker can force you to square-off the trade position or sell your securities without your consent.
Therefore, before using the MFT facility, traders must analyse both positive and negative aspect of this facility. To get the benefits of low margin interest rate and low brokerage, open demat account online with Bajaj Financial Securities Limited today.