Margin trading is a powerful technique used by investors to amplify their potential returns by borrowing funds to purchase securities. While margin trading may seem complex, it can provide significant benefits to investors who understand how to use it properly. In this blog post, we will talk about what isMTF (Margin Trading Facility),its benefits of margin trading and how the margin trading facility can benefit investors.
What is MTF?
The Margin Trading Facility (MTF), also known as eMargin, is an approved product offered by exchanges. It effectively resolves the issue of insufficient funding when initiating a delivery trade. With eMargin, traders can execute trades in the delivery segment with a margin requirement as low as 20%, while the remaining amount is covered by their broker. This facility empowers traders to overcome funding limitations and seize trading opportunities with ease and flexibility.
Benefits of Margin Trading Facility
Increased Buying Power
One of the most significant benefits of margin trading is increased buying power. By using leverage, investors can purchase more securities than they would be able to with their own funds. This can potentially increase profits and diversify their portfolio.For example, suppose you intend to purchase stocks valued at ₹1,00,000but your account balance is only ₹25,000. To cover the remaining balance of ₹75,000. In return for this funding, you will incur interest charges based on the funding amount. In the given scenario, brokers like mStock offers funding ateMargin interest rate of 6.99% which is lowestin the industry Thisamounts to ₹593 for a one-month duration (charges may vary depending on your holding period) thus enabling you to access the necessary funds and proceed with your desired investments.
Ability to Hedge Positions
Another benefit of margin trading is the ability to hedge positions. By using margin trades, investors can take both long and short positions on securities. This means that they can potentially profit from both rising and falling markets. For example, if an investor believes that a particular stock is overvalued and will decline in value, they can borrow funds to short sell the stock. If the stock declines in value, the investor can buy it back at a lower price and profit from the difference.
Tax Benefits
Margin trading can also provide tax benefits in some cases. The interest paid on margin loans may be tax-deductible, which can potentially reduce an investor’s tax liability and increase their after-tax returns.
Access to High-Value Securities
Margin trading can also provide investors with access to high-value securities that they may not be able to purchase with their own funds. For example, an investor with Rs.10,000 in their account may not be able to purchase a single share of a high-value stock worth Rs.10,000. However, by using margin trading, they could purchase two shares of the same stock by borrowing an additional Rs.10,000.
Potential for Higher Returns
Margin trading can potentially lead to higher returns than traditional trading methods. By using leverage, investors can amplify their potential gains. For example, if an investor deposits Rs.10,000 into their margin account and borrows an additional Rs.10,000, they can purchase Rs.20,000 worth of securities. If the securities increase in value by 10%, the investor would earn a Rs.2,000 profit, or a 20% return on their original Rs.10,000 investment.
Risk Management
Margin trading can also help investors manage their risk by providing tools such as stop-loss orders. A stop-loss order is an instruction to sell a security if it falls to a certain price level, limiting the investor’s potential losses.
Access to Margin Trading Facility (MTF) Calculator
Investors can use a MTF calculator to determine the potential returns and risks of margin trades. By inputting variables such as the amount of borrowed funds, the interest rate, and the securities being traded, investors can determine the potential profits and losses of their trades. This can help investors make more informed decisions and manage their risk.
Margin trading can provide significant benefits to investors who understand how to use it properly. mStock by Mirae Assets Capital Markets is one such company which offers excellent Margin Trading Facility (MTF) services, empowering investors to unlock significant advantages. mStock stands out in the industry by providing one of the lowest interest ratesi.e., 6.99% p.a. (one of the lowest daily interest rates starting @ 0.0192%),get up to 80% funding in more than 700 stocks,unlimited holding period, no subscription fees, or hidden charges.
Investors can increase their buying power, hedge positions, access high-value securities, and potentially achieve higher returns. It is important, however, for investors to approach margin trading with caution and conduct thorough research and analysis before engaging in such activities. Understanding the terms and conditions, interest rates, and potential risks involved is crucial for successful margin trading.
We hope this article has provided you with a comprehensive understanding of the numerous benefits that the Margin Trading Facility (MTF) can offer. With this knowledge, we encourage you to embark on your investment journey with confidence and enthusiasm. May your investment endeavours be fruitful and successful. Happy investing!
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