What is Cashless MTF, and how does it work?

Cashless MTF

Cashless MTF is a facility which allows traders to buy and sell stocks by pledging their existing stocks kept in a demat account. Currently, this facility is only available for cash trading stocks, but not in derivatives.

Margin Pledge explained

The concept of using existing demat holdings as collateral to get additional trading margin is called pledge margin. Traders use this facility to purchase more shares. It offers flexibility to increase trading exposure without immediately adding fresh cash.

Margin Trading Facility (MTF) and Cashless MTF explained

Margin Trading Facility (MTF) allows a trader or investor to buy a stock by paying as low as 25% upfront, while the remaining 75% is paid by the broker. It gives a trader up to 4X buying power.

Usually, the 25% upfront margin must be available as a cash balance in your trading account. But with cashless MTF, traders don’t need to add any cash to the account. Instead, a trader opts to pledge the existing holdings (act as cash) and place the trade.

In simple words, cashless MTF or cashless trading lets the investors trade using pledged shares as a margin instead of cash, enabling buying opportunities without selling existing holdings or depositing fresh cash.

How is Cashless MTF different from a Delivery or Normal MTF Order?

Suppose you want to buy shares worth ₹10 lakh. Here’s a tabular explanation of how it looks in different order types.

While placing the delivery order, the full amount of ₹10 lakh is to be paid, and there is no funding by Upstox, nor is there any pledge margin.

While placing the order by MTF, the cash paid by the trader is ₹2,50,000, which is 25% of the total order value, and the remaining ₹7,50,000, which is 75%, is funded by Upstox.

In a cashless MTF, to buy shares worth ₹10,00,000, the trader does not have to pay any upfront amount. Instead, if any existing holdings are available, it can avail pledge margin benefits to get the cash for placing a trade.

Here, ₹7,50,000, which is 75% of the total value, is funded by Upstox as MTF and the remaining ₹2,50,000 is pledged money (funded by Upstox only, after taking shares as collateral).

How is interest charged under Cashless MTF?

Under Cashless MTF, the interest will be charged on the total order value. As mentioned in the above table, 75% of the money is funded by Upstox, and 25% is pledged money. Therefore, the interest will be charged accordingly.

For example, suppose the interest rate of MTF is 0.05% daily on the borrowed money, then interest will be charged as 0.05% of ₹7,50,000 = ₹375 per day.

The remaining ₹2,50,000 is pledged money, which is charged according to the rules of pledge margin. The interest rates can be lower due to collateral.