23 March 2024
4 mins read
Brokers pick scrips for margin trading based on liquidity, volatility, and market size, following SEBI's rules. Not every listed stock qualifies for MTF. Brokers keep an approved list of eligible stocks. This blog covers what scrips mean in margin trading, how brokers choose them, their pros and cons, key selection factors, and a list of eligible Indian companies.
Not all Shares are eligible for Margin Trading Facility (MTF). The eligible securities are decided by the brokers as per the criteria laid down by SEBI and stock exchanges. While preparing the list of eligible scrips, liquidity, trading volume, price volatility, market capitalisation and regulatory requirements are considered. These standards help to ensure that only securities that meet certain risk and trading standards are available for margin trading. The exchanges and brokers shall have the right to review and update the list of eligible stocks from time to time. Investors are advised to check the current list of scrips eligible for trading on MTF.
Scrips, which are also known as securities, are financial instruments that serve as alternatives to legal tenders. The bearer of a scrip is entitled to receive something from the issuer. There are many forms of scrips including stocks, currencies, etc. These instruments are traded in the stock market, where investors buy and sell them for profit.
When investors buy scrips on margin, they are essentially borrowing money from their broker to increase their buying power. This means that they can purchase more scrips than they could with their own funds, which can potentially lead to greater profits.
However, buying on margin also involves greater risk, as investors are not only exposed to the price fluctuations of the underlying asset but also to the interest charges and potential margin calls associated with the borrowed funds. It is therefore important for investors to carefully consider the risks and benefits of buying scrips on margin before making any investment decisions.
The Securities and Exchange Board of India (SEBI) has defined a list of scrips eligible for margin trading in the country. Brokers offer the margin trading facility for a smaller subset of these securities based on the following parameters:
Additionale Read: Understanding Margin and Margin Trading Facility
Not every scrip qualifies for margin trading. This selection process brings its own set of upsides and downsides for investors.
Better risk control: When brokers limit eligible scrips, it cuts down exposure to risky or hard-to-sell stocks. This lowers the chance of default.
Limited stock choice: Investors can only use MTF on approved scrips. This narrows their options compared to regular cash trading.
Improved liquidity assurance: Eligible scrips are usually high-volume stocks. This makes it easier for investors to enter and exit positions.
Periodic list changes: Brokers and exchanges update the eligible scrip list from time to time. This can affect your ongoing trading plans.
To select margin scrips, brokers consider using the following tools:
Only securities categorised as Group-I securities according to SEBI can be used for margin trading. Follow the list given below to learn about the top eligible scrips in India:
| Sr. No. | Scrip Name | NSE Symbol |
|---|---|---|
| 1 | Aarti Industries Limited | AARTIIND |
| 2 | ABB India Limited | ABB |
| 3 | ABBOT India Limited | ABBOTINDIA |
| 4 | Aditya Birla Capital Limited | ABCAPITAL |
| 5 | Aditya Birla Fashion and Retail Limited | ABFRL |
| 6 | Associated Cement Companies Limited | ACC |
| 7 | Adani Enterprises Limited | ADANIENT |
| 8 | Mundra Port And Special Economic Zone Limited | ADANIPORTS |
| 9 | Alkem Laboratories Limited | ALKEM |
| 10 | Ambuja Cements Limited | AMBUJACEM |
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Brokers consider factors such as liquidity, volatility, market sentiment, and regulatory restrictions when selecting stocks for margin trading.
Liquidity ensures that traders can easily enter and exit positions, reducing the risk of price manipulation and providing more opportunities for trading.
Market sentiment can influence stock prices and trading volumes, making it essential for brokers to consider public perception and investor behaviour when choosing securities for margin trading.
Technical analysis involves studying historical price patterns and indicators to forecast future price movements, helping brokers identify potential trading opportunities for margin trading.
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