If you’re new to Margin Trading and want to understand what a Margin Trading Facility (MTF) is, especially the MTF stock list, you’ve come to the right place. MTF can be the game-changer investors need to boost their investments. Let’s break down what MTF is, how it works, and what you need to know about the MTF stock list.
What is a Margin Trading Facility?
An MTF allows an investor to buy more shares than his coffers will permit through a loan availed by the broker. This amount, which is borrowed, is called margin money and increases your spending power and, therefore, potential returns. In essence, one gets financial leverage to invest more in the stock exchange market.
How Does MTF Work?
This can be broken down simply as follows:
1. Initial Margin
In Margin trading facility, an initial margin is needed, which is a certain percentage of the total value that one is purchasing. The balance is provided by the broker.
2. Maintenance Margin
The investor has to maintain a minimum value of equity in the margin account. When the value of the holdings falls below this level, the investor will get a margin call.
3. Margin Call
Where your broker requires you to either add more cash or sell some positions in your portfolio to boost the account to the minimum required maintenance level. If you cannot meet your margin call, your broker will receive permission to sell off your investments to compensate for the shortage.
Benefits of Using Margin Trading Facility
1. Buying Power Advantages
You’ll be able to buy more stock through margin trading versus just using cash. Your returns increase if the stocks do well.
2. Flexibility
With MTF, it does not miss the opportunity within the market by waiting to build more funds. It particularly helps in a highly volatile market.
3. Leveraged Returns
By leveraging your investments, you can arguably achieve better returns vis-à-vis investing only with the available cash.
Risks of Availing of Margin Trading Facility
1. Amplified Losses
While one thinks of MTF amplifying gains, it could also magnify losses. In the event that the stock price goes south, you stand the chance of losing more than what you had invested in the first place.
2. Margin Calls
This one is pretty straightforward: if the market gets volatile enough, you can be subject to a margin call. You’ll be required to deposit more cash. If you can’t meet the margin call, your broker may sell off your holdings at a loss.
3. Interest Costs
If you’re going to borrow money, you’re certainly going to be paying interest on your margin loans, which aren’t small, especially when you hold onto those positions for some time.
Understanding the MTF Stock List
This list includes all those stocks that are eligible for margin trading. Most brokers provide this list. The stocks are filtered according to the criteria laid down by various bodies, which include SEBI, that is Securities and Exchange Board of India.
Criteria of MTF Stock List
1. Liquidity: The trading volume of the respective stocks has to be high enough to ensure liquidity.
2. Volatility: Less volatile stocks are preferred; very volatile ones are risky.
3. Market Capitalization: A higher market capitalization share is preferable as it is considered more stable.
Accessing the MTF Stock List
The MTF stock list can be accessed from the platform provided by your broker. Most brokers do provide a detailed list of eligible stocks for margin trading.
Choosing the Right Broker for MTF
While choosing the right broker for margin trading, a number of factors should be taken into consideration:
1. Regulation and Compliance: It has to be seen that the broker has been incorporated under SEBI regulation and that he follows all the legal requirements.
2. Interest Rates: Compare the rate of interest charged by various brokers for the margin money availed from them. Lower rates would save a lot on your borrowing costs.
3. Risk Management Tools: Opt for those brokers with advanced risk management tools like stop-loss orders or margin call alerts.
4. Customer Support: Brokers provide reliable customer support, which helps to sort out any issues quickly.
Conclusion
Get a strong investment strategy by adding a Margin Trading Facility to your investment portfolio. One could leverage investments made and increase the buying power in margin trading, with probabilities of higher returns.
It also risks forming possible enlarged losses by margin, besides exposure to margin calls. Always research and be very sure about the MTF stock list. Only then has one opted for a credible broker that he/she will be in a position to make concrete decisions regarding the kind of risks involved.