When trading or investing in the stock market, we often want to buy more shares using a limited amount of capital. This is where the concept of MTF in trading becomes useful. MTF (Margin Trading Facility) is a facility in which your broker provides additional funds, allowing you to purchase shares worth more than your available balance.
Today, many beginners as well as active traders are searching for questions like What is MTF in trading, What does MTF mean, and How does Margin Trading Facility work? If you are starting your trading journey or looking to increase your buying power for short-term investments, understanding MTF becomes very important.
In this article, we will explain the meaning of MTF in trading, how it works, its benefits, charges, risks, and whether MTF is safe for beginners, in a clear and easy-to-understand manner.
What Is MTF in Trading? (Meaning of Margin Trading Facility in Trading)
MTF stands for Margin Trading Facility.
In simple terms, MTF is a trading facility in which the broker provides you with additional funds, allowing you to buy more shares than your available capital — on a delivery basis.
Normally, in delivery trading, you need to pay 100% of the amount to buy shares. However, in Margin Trading Facility (MTF), this is not the case. Under this facility, you only pay a portion of the total amount, and the remaining amount is funded by the broker in the form of a loan.
How does this benefit you?
- You can buy more shares even with limited capital
- The shares are credited directly to your demat account
- You can hold the shares for more than one day
However, there is one important point you must understand the extra funds provided by the broker are not free. Interest is charged on the funded amount. That’s why MTF should be used carefully, especially by beginners.
How Does MTF Treading Work?
Understanding how MTF works is important before using it in trading. Once you enable the Margin Trading Facility in your trading account, you can use MTF only for those stocks that are eligible as per your broker’s rules.
After selecting an eligible stock, you are required to pay only a portion of the total value, while the remaining amount is funded by the broker. Once the order is executed, the shares are credited directly to your demat account, and you can hold them for more than one day. However, for every day you hold the shares, interest is charged on the amount funded by the broker. When you decide to sell the shares, the broker first adjusts the funded amount along with the applicable interest, and the remaining profit or loss is reflected in your trading account.
In simple terms, MTF trading allows you to use both your own capital and the broker’s funds to do delivery trading. While this increases the potential for higher returns, it also increases the level of risk.
How Is Interest Charged in MTF Trading?
One of the most important things to understand in MTF trading is interest calculation. When you use the Margin Trading Facility, the extra funds provided by the broker are not free. Interest is charged on the funded amount on a daily basis, although the rate is usually mentioned on an annual basis. This means the longer you hold the shares, the more interest gets added to your total cost.
Let’s understand with a simple example
Suppose you buy shares worth ₹1,00,000 using MTF. Out of this, you invest ₹50,000 from your own funds, and the remaining ₹50,000 is funded by the broker. If the broker’s interest rate is, say, 18% per year, then daily interest will be calculated on the ₹50,000 funded amount. If you hold the shares for 10 days, interest for those 10 days will be added to your overall cost. That’s why, if the stock does not move much, interest charges can sometimes reduce your profit.
For this reason, MTF should always be used with a short-term plan and a clear exit strategy, so that interest costs remain under control.
When Should You Use MTF Trading
MTF should not be used in every situation. This facility works best only when you enter a trade with the right timing, the right stock, and proper planning. In general, MTF should be used when the market trend is clear and the stock shows short-term upside potential. Stocks with strong fundamentals, supported by good volume and momentum, are usually better suited for MTF trading.
MTF can also be useful when you have limited capital but do not want to miss a good opportunity. However, it is very important to have a clear exit plan, because interest costs are added on a daily basis. That’s why MTF is mostly suitable for short-term trading, not for long-term holding.
Is MTF Trading Safe for Beginners
MTF trading can be safe for beginners only when it is used with proper understanding and limited risk. Since MTF involves the use of broker-funded capital, both profits and losses can increase faster than in normal delivery trading.
If you are a beginner and use MTF trading only in the hope of earning higher returns without having proper knowledge, it can be quite risky. Factors like interest costs, margin requirements, and market volatility can be confusing at the initial stage, and wrong decisions may quickly turn into losses.
However, if you:
- Have basic experience in delivery trading
- Understand interest and margin calculations
- Use short-term holding with proper stop-loss
- Start with a small amount
Then MTF trading can become a manageable and useful tool for you.
In simple words, beginners should treat MTF as a learning tool, not as a shortcut to quick profits. Until you build enough confidence and experience, avoiding over-leverage is always the smartest approach.
Difference Between MTF and Intraday Trading
Many traders often confuse MTF with intraday trading, but both are quite different in terms of holding period, risk level, and trading style.
MTF is a delivery-based trading facility where you can use broker-funded money to buy shares and hold them for more than one day. On the other hand, intraday trading requires you to buy and sell shares within the same trading day.
To understand the difference more clearly, check the comparison table below:
MTF vs Intraday Trading
| Basis | MTF (Margin Trading Facility) | Intraday Trading |
|---|---|---|
| Type of Trading | Delivery-based trading | Buy and sell on the same day |
| Holding Period | Shares can be held for more than one day | Positions must be squared off the same day |
| Shares in Demat Account | Shares are credited to the demat account | Shares are not credited to demat |
| Broker Funding | Yes, broker provides funds | Yes, but only for the same trading day |
| Interest Charges | Daily interest is charged on funded amount | Usually no interest is charged |
| Risk Level | Medium to High | High |
| Best Suitable For | Short-term delivery traders | Active and experienced traders |
| Beginners | Can be used with proper understanding | Generally risky for beginners |
Advantages of MTF Trading
The biggest advantage of MTF is that it allows you to get better market exposure even with limited capital. If you have a small amount of money but you have identified a strong stock opportunity, MTF helps you buy a higher quantity by using broker-provided funds.
MTF is also useful for traders who focus on short-term opportunities but want to avoid the high risk of intraday trading. Since MTF allows you to hold shares for more than one day, it gives you flexibility and reduces the pressure of closing trades on the same day.
Risks of MTF Trading (Disadvantages & Risks)
As powerful as the MTF concept is, it can be equally risky if used without proper understanding. The first and most important risk is the interest cost. The longer you hold the shares, the more interest gets added daily, which can slowly reduce your overall profit.
Another major risk is the faster growth of losses. Since you are using both your own money and the broker’s funds, even a small negative movement in the stock can result in higher losses compared to normal delivery trading. In some situations, the broker may also ask for additional margin, which is known as a margin call.
Apart from this, if the market falls sharply and you fail to maintain the required margin, the broker has the right to forcefully sell your shares. That’s why trading in MTF without a stop-loss and a clear exit strategy is considered the biggest mistake.
MTF vs CNC (Normal Delivery)
Many beginners often get confused between MTF and CNC, but there are significant differences between the two. Let’s understand them below.
CNC (Normal Delivery) allows you to buy shares using 100% of your own funds, and the shares are permanently credited to your demat account. You can hold them for as long as you want, and there are no extra funds or interest charges from the broker. This is a low-risk approach and is considered safe for beginners.
MTF (Margin Trading Facility) allows you to use your capital along with broker-provided funds, so you can buy more shares by investing less of your own money. However, it comes with interest costs and higher risk. In MTF, shares are delivery-based, but daily interest is charged on the broker-funded amount for the days you hold the shares. If the stock moves against you, losses can accumulate faster than normal delivery trading.
To make it even easier for you to understand, here are some examples of companies and their MTF daily interest rates:
- Kotak MTF interest rate – 0.0270% per day
- Groww MTF interest rate – 0.097% per day
- Zerodha MTF interest rate – 0.05% per day
- Lowest MTF interest rate – 7.99% to 14.99% per annum
For the latest and official interest rates, you can check NSE India or the brokers’ official websites like Kotak Securities and Zerodha.
Important Points Every Trader Should Remember
- Not every stock is eligible for MTF.
- Rules may vary during corporate actions.
- Always read your broker’s MTF policy carefully.
- Make sure to use a stop-loss.
- Avoid over-leveraging.
FAQs – MTF in Trading
Q1. What is the full form of MTF?
A. Margin Trading Facility.
Q2. Is MTF intraday trading?
A. No, MTF is delivery-based trading.
Q3. Are shares held in the demat account in MTF?
A. Yes, the shares are credited to your demat account.
Q4. Is MTF suitable for long-term investment?
A. No, because the interest cost can increase significantly over the long term.
Q5. Can beginners use MTF?
A. Yes, but only with proper knowledge and risk management.
Conclusion
MTF is a powerful tool, but it should only be used when you have proper understanding. With the right knowledge, MTF can help improve returns, but improper use can lead to capital loss.
If you are a beginner, first understand normal delivery trading and learn risk management. Once confident, you can try MTF with a small amount to gain experience safely.
I’m Satyam. I have been investing in the stock market for the past three years and continuously learning to understand market trends and financial insights. I have completed my B.Com and I enjoy learning new things and sharing useful knowledge with people in a simple and clear way. As a content writer, my goal is to create content that is accurate, helpful, and practically valuable for readers.