Margin Trading Facility: All you need to know

Here's what we are covering in this blog:

• Why use Margin Trading Facility?
• How to use Margin Trading Facility?
• What are the charges for Margin Trading Facility?

Certain events alter the course of a company’s business. They also trigger a strong momentum in the stock price, particularly in the short term.

Consider this:

• HDFC announces merger with HDFC bank.
• Reliance Industries bets big on green energy.
• Vodafone Idea may get ₹20,000 crore boost from Amazon soon.
• Tata Motors sees Jaguar Land Rover back in profit.

Similarly, a technical breakout in the price chart also offers the opportunity to trade on the positive sentiment around a stock.

As a trader, you want to capitalize on the sharp price movements triggered by positive news or technical patterns. You may want to double down on certain high-conviction trades. However, with limited capital, you may not be able to fully leverage such opportunities.

With Margin Trading Facility (MTF) on Upstox, you can increase your trading capacity instantly. 

For example, if you have ₹70,000 in your Upstox securities wallet, you can now buy shares worth up to ₹140,000, just by activating MTF. Note that the percentage of MTF availed is fixed at 50% of the transaction value and can’t be changed.

How to use MTF?

• Activate MTF. 
• Buy stocks using MTF.
• Authorize the pledge on CDSL.
• Close an MTF position.

Let’s deep dive into each step:

(1) Activate MTF 

It is a one-time, paperless process that takes just a few seconds. Once activated, you can use it whenever you want by toggling on/off the “Get up to 50% funds from us’’ button.

To activate MTF, login to your Upstox account and select an NSE scrip that you want to buy. 

Tap on ‘Delivery’ and then ‘Learn more’ to begin MTF activation. MTF is available on over 477 stocks.

(2) Buy stocks using MTF

Once MTF is activated, buying stocks using MTF is easy. Note that MTF is only available for equity delivery orders. 

Click on the ‘Buy’ button on the scrip that you want to buy, and choose ‘Delivery’ as the product type. 

Turn on the “Get up to 50% funds from us" toggle to buy using MTF.

Fill in the rest of the order details and place the order. You can check your MTF order status under the ‘Orders’ option on the ‘Trades’ tab. Once the trade is executed, the shares will be visible in the ‘Positions’ tab.

Please note that at any given time, the total amount you avail from MTF can’t exceed ₹50,00,000.  So you contribute ₹25,00,000 and Upstox contributes ₹25,00,000 which equals a total of ₹50,00,000. 

(3) Authorize the pledge on CDSL

As per regulations, when a broker provides funding through MTF, they need to pledge the MTF shares with CDSL. 

When you place an MTF order, you will get a notification from Upstox to authorize the order on CDSL on the same day before 7:00 PM. Click on this notification to complete the authorization or go to Account >> Actions >> MTF Authorization.

(4) Close an MTF position

Stocks bought using MTF can be held for a period of only 365 days on a temporary basis, and you can find them under your Positions tab (not Holdings) on the Upstox platform. You can close your Positions at any point in time within 365 days from purchase. 

The process to sell MTF positions is the same as selling your demat holdings on Upstox. 

If you’ve not exited/sold your MTF positions within 365 days on a temporary basis, Upstox will automatically square them off on the 366th day. 

The stocks bought under MTF will be eligible for dividends and bonus issues. However, buyback will not be applicable, since a buyback is available only on the shares which are free (not pledged). MTF positions are partially funded by Upstox and the funding is offered after pledging the shares with CDSL. 

What are the charges for MTF? 

The usual brokerage charges of up to ₹20/order for equity delivery will be applicable.

In addition to the above, here are the charges for MTF:

Daily charges

Upstox charges ₹20/day for every slab of ₹40,000 taken as MTF.

Example: You’ve taken ₹70,000 as MTF. Then you would pay ₹20/day (for the first ₹40,000) + ₹20/day (for the rest ₹30,000) which is a total charge of ₹40/day.

These charges are applicable every day until you sell your MTF positions.

One-time charges

Pledging charges: For every MTF buy transaction, you are charged ₹20 (plus tax) as pledging charges. And for every MTF sell transaction, you are charged ₹20 (plus tax) as un-pledging charges. 

Please note: 

Taking margin doubles your buying power, which could result in higher profits or lead to a higher loss. For example, after purchasing a stock via MTF, if the stock moves up by 5%, the profit on your capital would be 10%. In the same way, if the stock falls by 5%, the loss on your capital would be 10%. Further, the amount borrowed via MTF is temporary funding from Upstox provided till the time you hold the position or for 365 days, whichever is lesser.

So this is how MTF works on Upstox. Go ahead, and give it a try!

Margin Trading Facility (MTF) is available on the new Upstox app. Click here to download now.