uTrade AlgosThe Margin Trading Facility (MTF) allows you to buy stocks by contributing a portion of the trade value upfront, with the remaining amount funded by Share India. While this gives you the ability to take leveraged positions, it also introduces certain risks. Understanding these risks will help you make better, more confident decisions and avoid unexpected outcomes.
Margin Shortfall and Auto Square-Off
You are required to maintain a minimum margin as per the stock’s risk profile (VAR + ELM-based calculation). If the stock price falls and your margin drops below the required level, you’ll receive margin calls and may be required to fulfill margin requirements on short notice. Failure to do so may result in the automatic square-off of your position by Share India’s Risk Management System (RMS).
Why it matters: Your position would be automatically squared off on short notice during volatile periods if you don’t act promptly on margin calls.
Tip: Regularly monitor your margin status and maintain a buffer to manage sudden market fluctuations.
Interest Obligation
The borrowed amount under MTF attracts an interest rate of upto 22% per annum at Share India. This interest continues to accrue as long as the position is open.
Why it matters: If the stock doesn’t move much and the position is held for a long time, the cost of funding can impact your prospects over time.
Tip: Review your holding duration and factor in interest costs when considering long-term MTF positions.
Marked-to-Market (MTM) Loss Requirements
If your MTF stock trades below your purchase price, you are required to pay the difference (MTM loss) to maintain your position.
Why it matters: This adds another layer of capital requirement beyond the initial margin, especially during falling markets.
Tip: Monitor MTM losses on a daily basis and pay the requirements regularly to avoid margin shortfalls and margin calls.
Change in MTF Eligibility of Stocks
If a stock you’re holding under MTF is removed from the eligible MTF list (for regulatory, compliance, or risk reasons), you’re required to close your position within 10 working days.
Why it matters:
Failure to act in time could result in a forced square-off by RMS.
Tip: Stay updated on the eligible MTF stock list.
Event-Based Risks
Corporate actions, such as mergers, demergers, stock splits, and bonuses, can impact your MTF positions. In such cases, you may be required to square off your MTF holdings before the ex-date.
Why it matters:
Holding MTF positions through such events may lead to compliance issues or forced liquidation.
Tip: Track upcoming corporate actions on your holdings and seek assistance if unsure.
Liquidity Risk
Some stocks may not have enough trading volume, making it difficult to sell your holdings quickly at expected prices during volatile times.
Why it matters:
A sudden lack of buyers can make it harder to exit leveraged positions in time.
Tip: Prefer liquid, high-volume stocks when using leverage.
Conclusion
While MTF opens up new possibilities in trading, it also demands greater discipline, risk awareness, and financial preparedness. Always assess your risk appetite and financial goals before opting for leveraged trades.
If you need assistance, you can reach out to Share India’s support team via support@shareindia.com or call 1800 203 0303 for help or clarification.