Introduction
Of the many methods to trade in the stock market, margin trading is also one. Margin trading is a method that allows traders to invest in high-value stocks at a fraction of their actual price. This is done by borrowing funds from the stockbroker that a trader is working with. As collateral for this borrowed amount, traders can use either cash or the shares they hold. The main aim of the MTF calculator is to make the process of margin trading simpler for traders.
Understanding Margin Trading Facility
In simple terms, the Margin Trading Facility or MTF, enables a trader to buy stocks by simply paying a part of the total value. The remaining amount is funded by the stockbroker as a loan, on which a nominal interest is charged.
Here’s an example to help you understand the facility better:
- Let us suppose that you have ₹100 to invest, but you are interested in shares valuing ₹500.
- Now with the help of MTF, you can invest in these stocks with ease
- With most brokers, traders usually need to provide 20% of the total value of a stock as part of MTF
- In this context, 20% of ₹500 amounts to ₹100.
- Then the remaining 80%, i.e. ₹400 in this context, will be funded by the stockbroker.
Understanding the MTF Calculator
Think of the MTF Calculator as a tool that helps traders calculate all the costs that are involved in a particular margin trade. Listed below are some of the main features of the MTF calculator:
- An MTF calculator includes the interest that a stockbroker is charging a trader on the borrowed funds
- The more accurate the margin details entered by the trader, the better the MTF calculator can help a trader.
- The MTF calculator helps traders understand their trading costs better after taking into account all the details entered by you.
- All charges under MTF are usually clarified by the broker as brokers who offer MTF are authorized by SEBI to do so.
- With the MTF calculator, traders can choose the right stockbroker considering all the costs.
Benefits of Using MTF
There are many benefits to using MTF. Some of these benefits are listed below:
- High Returns:
As traders can invest in high-value stocks while only paying a part of it, the chances of them yielding higher returns on the same are also higher.
- Greater Buying Power
With the help of MTF, traders gain access to stocks and shares whose value is 4x their initial investment amount.
- Short-Term Gains
Using MTF to trade is an ideal way for traders to generate short-term gains with minimum investment.
- Leveraging Stocks
In case a trader does not have the cash needed to fund the margin amount, they can also leverage the stocks they have in their Demat account instead.
- Regulated by SEBI
SEBI has established ground rules that enable only corporate brokers to offer MTF to traders. Due to this very reason, every security that traders can invest in under MTF is pre-defined by SEBI.
- Safe
Since MTF is authorized by SEBI, it makes sure to monitor the process, amending rules when necessary to help preserve a trader’s interest.
How to Use the MTF Calculator
The great thing about the margin trading calculator is that you can determine the potential returns you will get through margin trading. This is how an MTF calculator is to be used:
- Start by first opening the MTF calculator page on the website of your choice
- Here, enter the ‘Stock Name’ and the ‘Quantity of Stock’ you want to buy
- Once these two are entered, the current market price, required margin and the funding amount will auto-fill.
- If there are any particular subscription plans a stockbroker is offering, they too would be listed here.
- Selecting these plans will enable traders to see the interest rate each of them provides.
- Once you have filled all the information, you would need to click on the ‘calculate’ option
- After this, you will be able to view the funding amount, the margin required, the interest amount, the current market price of the share and the breakeven price.
Conclusion
MTF is a great way for traders to invest in stocks that their funds will not be able to afford on their own. This will enable them to purchase higher value stocks and increase the potential to earn higher returns. With the help of the MTF calculator, traders can calculate details like the interest they will be paying for a particular duration and the breakeven that a particular MTF trade would bring about.
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