Traders and investors establish risk management methods for capturing potential market gains when market volatility experiences an increase. Although futures trading enables traders to use leverage for their trades, it functions as an expensive and difficult trading method that traders cannot access.
What is Margin Trading Facility (MTF)?
The Margin Trading Facility (MTF) service allows stockbrokers to provide investors the capability to purchase stocks by paying a small financial fraction of the stock price. The stock purchaser needs to make an initial payment to acquire stock rights, while the broker provides the remaining stock cost as a loan. You use the stocks that you buy as collateral to secure your loan. You can trade more dollars because your trade exceeds the limits of your capital resources.
How Does MTF Work?
The investor can use MTF to obtain funding from the broker for stock purchases. The broker establishes the margin requirement, which determines the percentage of the total purchase value that the investor needs to provide as a margin. You can buy ₹100,000 worth of stocks by paying ₹25,000 because the broker provides the remaining ₹75,000 when the margin requirement is 25%. You can control more stock through this method, which allows you to make bigger profits while also increasing your risk of losing money.
Comparing MTF Trading Accounts and Futures Trading
1. Ownership of Assets
The ownership distinction represents the main difference between MTF and futures trading. You acquire stock ownership through MTF when you buy stocks. You have the right to dividends and other benefits associated with owning stocks. Futures contracts do not permit you to acquire ownership of the asset that lies beneath their surface. You can only make predictions about how prices will change.
2. Flexibility in Holding Period
Futures contracts establish specific dates for contract termination, which prevent traders from maintaining their futures positions until those dates. Futures contracts need to be moved to new contracts if traders wish to maintain their positions beyond their initial contract end date. MTF provides users with infinite position-holding possibilities, as customers can maintain their MTF positions indefinitely while they meet their margin obligations and interest payments.
3. Risk Profile
Through MTF and futures trading, users can access leverage, which increases their possibilities of gaining rewards as well as their chances of incurring losses. The presence of time limits, plus the risk of significant margin calls during market fluctuations make futures more dangerous than other options. The people who trade MTF must manage their own assets, which creates less trading risk than futures trading.
4. Interest vs. Cost of Carry
Futures trading costs include the expenses needed to maintain a position through their associated futures prices. The MTF trading system requires users to pay interest fees for any funds they borrow. The daily interest rate charges will accumulate over time, making it essential to assess the total financial cost of MTF versus futures trading.
Why MTF is a Low-Cost Alternative to Futures Trading
1. Lower Initial Capital Requirement
MTF accounts enable investors to increase their trading capacity, allowing them to manage higher stock values through reduced initial investment requirements. You can control ₹1,00,000 worth of stocks by paying only ₹25,000 because the margin requirement needs 25% of your total stock value. Futures mandate a substantial initial margin requirement for position establishment, while this method offers an easier entry point.
2. No Expiry Date
MTF positions remain active indefinitely, which eliminates the contract rollover need that exists in futures trading. You no longer need to close your position because of an established date requirement. MTF account holders can maintain their stock positions for an extended period, enabling them to gain from price increases during times of heightened market volatility.
3. Simple to Understand
New traders find MTF accounts easier to comprehend than the complexities of futures trading. Futures contracts require users to understand three fundamental components, which include market mechanics, contract specifications, and settlement procedures. MTF enables users to purchase actual stocks through regular equity trading while obtaining leverage benefits from their purchases.
4. Flexibility in Use
Users can choose any stocks they want to buy through MTF because it provides them with complete stock purchasing flexibility. Futures trading permits users to invest in individual stocks and ETFs and other securities, while futures trading restricts them to trading specific assets such as indices, commodities, and currencies.
5. Competitive Interest Rates
The MTF system provides borrowers with interest rates that are lower than the costs required for futures trading. The MTF contract for Bajaj Broking provides traders with competitive interest rates, which makes it a cost-effective option for traders who want to increase their trading exposures.
How to Open an MTF Trading AccountÂ
Interested customers need to establish a Demat and trading account with a broker who provides MTF trading services to begin their MTF trading journey. Bajaj Broking enables users to establish a Demat account through online methods, which permits them to begin trading with leveraged capabilities immediately.
The Open Demat Account page on the website serves as the starting point for account creation, which requires users to provide their personal information. The system requires users to complete the KYC document submission and verification process. After account activation, users can start trading with MTF by using their available MTF margin to create positions at a lower cost.
Conclusion
Investors who need a flexible and affordable way to leverage their investments should choose MTF trading accounts instead of futures trading. MTF enables you to hold stock ownership rights while benefiting from stock appreciation and maintaining a long-term stock position without time restrictions.
