2024-12-19 20:25:24 :
Nithin Kamath, CEO of online brokerage platform Zerodha, on Thursday announced the launch of a new margin trading facility (MTF) that will allow users to buy shares for delivery by borrowing money from brokers.
In a social media post from MTFs allow investors to purchase shares by paying a portion of the total value. The broker funds the remaining amount and charges interest on this loan.
“I don’t know if it’s a good time now with the market down, but we have finally launched an MTF (margin trading facility) that allows you to buy stocks by borrowing money from us and take delivery,” Nithin Kamath said in his note. postal.
Kamath highlighted his concerns about clients ignoring the impact of borrowing costs and the risk of trades going against bets.
“I was unsure about this product for a long time for obvious reasons. Clients who trade on delivery tend to ignore the impact of borrowing costs and there is always a risk that the trade goes against them, resulting in larger losses,” Card Maas said.
Zerodha leaders talked about how their customers have been requesting this feature as MTF has become increasingly popular over the past three to four years.
“Given the number of customers who have asked us to provide the feature, it doesn’t make business sense for us not to offer it. But yes, like anything else, we would never push it to customers and trigger them to trade,” he said in said in the post.
What is MTF?
MTF, or Margin Trading Facility, is a feature that allows traders to trade with funds using a brokerage platform. With this feature, traders can buy shares for delivery even if they don’t have all the funds required.
According to the Zerodha website, the terms depend on the stock being leveraged. Traders can borrow up to 80% of the trade value at an interest rate of 0.04% per day.
“Depending on inventory availability, you can borrow up to 80% of the transaction value. Daily interest rate 0.04% ( $As per Zerodha’s MTF rules, a 1/400,000 fee will be charged on borrowed funds before the MTF position becomes active.
The company also created a list of stocks that traders can purchase using the funds. Since the MTF feature is for lending, users must enable it from their account. If the account has PoA or DDPI enabled, MTF can be enabled immediately. Otherwise, getting approval to enable the feature would take a day, according to the company’s website.
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