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What is Margin Trading in the Stock Market?

Margin trading involves purchasing more stock than you can with your own capital by borrowing funds from a broker. This borrowing allows for larger investments but also increases risk.

Margin Trading Facility (MTF) enables purchase of securities by paying a margin amount while the remainder is funded by the broker. It is used by traders engaging in short- or medium-term trades. Under SEBI regulations, the structure is standardised for broker execution.

What is Margin Trading Facility (MTF) and How Does It Work?

MTF is a broker-funded option that allows the purchase of stocks by paying a percentage of the total trade amount (e.g., 25%). Bajaj Broking funds the rest, and the position can be held beyond the standard T+2 settlement timeframe.

Key Features of MTF with Bajaj Broking:

  • Up to 4x leverage based on approved stock lists
  • Interest rates starting at 11.99% p.a.
  • Pre-approved limits up to ₹150 crore per trading account
  • Access to call & trade and technical support
  • Same-day pledge facility via CDSL

How Does MTF Actually Work?

Investor Capital

50,000 4

+

Pays

2,00,000

Bajaj Broking Logo

=

Total Buying Power

2,50,000

 

The purchased stocks are held in the investor’s Demat account but pledged to the broker. The position can be maintained if margin obligations and pledging rules are met.

 

SEBI Mandate:

All MTF shares must be pledged on the same day of the transaction. Non-compliance may result in square-off by the broker.

Potential Benefits of MTF

Margin trading increases exposure but also carries higher risk. Possible advantages include:

  1. Larger Market Exposure:

    Leverage allows larger positions without full upfront capital.

  2. Efficient Capital Use:

    Funds not used for margin can be allocated elsewhere.

  3. Flexibility in Holding Periods:

    MTF positions can extend beyond intraday limits.

  4. Short-Term Trade Access:

    Traders may access larger positions in shorter timeframes.

  5. SEBI-Compliant Process:

    MTF follows pledging and disclosure norms laid out by SEBI.

  6. Strategic Use of Market Movements:

    MTF enables leveraged exposure during high-activity phases.

Who Can Consider Using MTF?

MTF is typically used by:

  • Traders with prior market experience
  • Individuals who actively track markets
  • Investors with moderate to high-risk tolerance

Avoid if:

  • You are a beginner
  • You are unable to monitor the market regularly
  • You prefer to limit capital risk exposure

Real-World MTF Example

Ravi has ₹1 lakh and wants to buy 800 shares of ABC Ltd at ₹500/share (₹4 lakh total):

  • Ravi pays ₹1 lakh (25% margin)
  • ₹3 lakh is funded via MTF
  • If stock rises to ₹550 → value = ₹4.4 lakh → profit = ₹40,000
  • If stock falls to ₹475 → value = ₹3.8 lakh → loss = ₹20,000
     

Note: Leverage amplifies both gains and losses.

Margin Trading vs Delivery Trading

Feature

Margin Trading Facility (MTF)

Delivery Trading

Capital Required

Partial (as low as 25%)

Full upfront

Holding Period

Short/medium-term

Long-term

Target User

Traders

Investors

Leverage

Available

Not applicable

Risk

Higher

Lower

Margin Calls

Possible

No

Interest

Applicable

Not applicable

SEBI Guidelines on Margin Trading

SEBI governs MTF usage via the following rules:

  • Only SEBI-registered brokers may offer MTF
  • Written investor consent is mandatory
  • Shares must be pledged on the same day
  • Brokers may square off non-pledged holdings
  • Transparent disclosures of charges are required

Margin Trading Charges with Bajaj Broking

Charge Type

Applicable Rate (Plan Dependent)

Interest – Freedom Pack

14.99% p.a.

Interest – Professional Pack

11.99% p.a.

Pledge Late Penalty

As per policy

Auto Square-Off Fee

Broker-defined

DP Charges

As applicable

Interest Calculation: Example

Formula:

Margin Used × Interest Rate × Days Held / 365

Example:

₹2,00,000 held for 20 days at 14.99% interest:

→ Interest = ₹2,00,000 × 14.99% × 20 / 365 ≈ ₹1,642

How to Use MTF with Bajaj Broking

  1. Open or log in to your Bajaj Broking account
  2. Search for MTF-approved stocks
  3. Place a BUY order using ‘MTF’ product type
  4. Execute trade and complete pledge by 11:59 PM
  5. Track positions via the platform

How to Pledge Shares for MTF

  1. Open the pledge link from CDSL (via SMS or email)
  2. Enter PAN and DP ID
  3. Select shares to pledge
  4. Complete OTP verification
     

Note:Pledging must be done the same day to avoid square-off.

Tools for MTF Traders

  • Stop-Loss Orders
  • Market Depth Indicators
  • MTF Calculator
  • Price Alerts
  • Daily Margin Reports

Common User Scenarios

  1. Short-Term Trader (Raj)

    Uses MTF around events like earnings. Monitors positions actively.

  2. Working Professional (Anjali)

    Missed pledge once; now uses alerts to avoid late pledging.

  3. New Investor (Kabir)

    Tried MTF without risk controls. Currently reviewing investment approach.

How to Pledge?

1. Post MTF approval, await Email/SMS notification for pledge initiation

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2. Click the CDSL link in the Email/SMS (You will be redirected to CDSL’s website)

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3. Enter PAN or Demat Account Details

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4. Select Stocks to Pledge

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5. Generate a one-time password (OTP) for authentication

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6. Enter the received OTP to Authorize and complete the process

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Margin Pledge is a mandatory process introduced by SEBI. When you purchase shares using the Margin Trading Facility (MTF), it's compulsory to pledge those shares to maintain your position. This pledge must be completed on the same day of the share purchase. Failure to fulfill this requirement will result in the forced square-off of your shares after a period of seven days from the transaction date (T+7 days).

Safe Trading Practices with MTF

Do’s

Pledge shares on time

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Use stop-loss orders

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Track interest costs

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Trade based on informed decisions

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Dont's

Ignore margin alerts

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Trade volatile stocks without preparation

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Use MTF for high-risk speculation

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Interest Rates Applicable on MTF

Freedom Pack

14.99% per annum

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Professional Pack

11.99% per annum

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The interest applicable on Margin Trade Financing is generally fixed which depends on your Demat account subscription pack. The interest calculation again varies from broker to broker but in general rule, the calculation is mentioned below:

 

Annual Interest Rate* MTF Position Created= Output* Term of the Loan

Let's say you have availed the MTF for a period of 24 days, then the amount will be multiplied by 24/365 to get the payable amount.

Bajaj Broking MTF Offering

  • Interest rates from 11.99% p.a.
  • App-based execution and pledging
  • Stock list regularly updated
  • SEBI-compliant operations
  • Access to calculators and market alerts

Conclusion

Margin Trading Facility (MTF) provides access to market leverage through partial capital deployment. It is structured for individuals who monitor the market actively and understand the risk-reward trade-off. SEBI regulations ensure standardisation and disclosures across brokers.

Note: MTF increases both opportunity and risk. It should be used with caution and proper strategy.

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