Introducing Margin Trading Facility (MTF) on Kite

We are happy to finally announce the launch of MTF (Margin Trading Facility) at Zerodha. This one has been a long time coming and is probably the most frequent feature request we’ve received over the years. We were caught up in two minds about whether to offer MTF or not. But eventually, given the pace at which it is growing and what is happening to derivatives in terms of contract value going up, we had to. Also, it made no business sense for us to be the only big broker to not offer MTF.

Growth of MTF book across the industry.

What is MTF?

MTF allows you to trade using leverage. With it, you can buy stocks for delivery even without the full funds required. Depending on the stock, you can borrow up to 80% of the trade value. An interest rate of 0.04% per day (Rs. 40 per lakh per day) is charged on the borrowed funds until the MTF position is active.

Here is a list of stock-wise leverage provided at Zerodha. The minimum margin is determined by the exchanges, and brokers can block over and above this as per their risk management policy.

Enabling MTF

Since MTF is a leveraged product, you’ll have to explicitly enable it for your account to use it. If your account has PoA or DDPI enabled, MTF can be enabled instantly. If not, enabling MTF takes about a day, but we are working on making this faster. Here are the steps to enable MTF:

Placing an order

Placing an MTF order on Kite is the same as placing other orders. Just select the MTF option on the order window and place your order as shown below. You can hold your MTF positions for as long as you want.

For MTF trades, Zerodha will email you a pledge request at 4:30 PM, which you must accept by 7 PM the same day.

Monitoring your MTF holdings

Once you buy a stock with MTF, you’ll see it in your holdings with a small “M.” You can also use the filter button to select only MTF holdings. This is available on Kite mobile and will soon be available on Kite web.

Console reports

MTF interest is charged on a daily basis, and you can keep track of this and the margin required on the Console MTF statement.

Risks of MTF

Leverage is like a weapon of mass destruction, and MTF is a leveraged product, so trade with caution.

With equity delivery trades, time is in your favour. Since you can hold a stock for a longer period of time, the price of a stock can recover. With a leveraged trade, time is acting against you because there is a cost to holding a stock bought via MTF. Each passing day costs you 0.04% of the funded amount. The longer you hold, the more this eats into the potential profits. Also, if the stock price falls, you have to bring in additional margin money to continue holding the position or you have to close it.

At Zerodha, we have never triggered people to trade. If anything, we’ve discouraged people from trading through nudges and all our educational initiatives. This will remain the same with MTF as well, and we’ll never push you to borrow and trade.

Why charge interest?

Leveraged trades also bring a lot of risk to the broker. If the cost of funds is 9.5% to 10%, we have to charge over and above this to compensate for the risk associated with the trade.

MTF has a higher interest rate than LAS (loan against security) provided by our NBFC Zerodha Capital at 11.5% because the margin provided is much lesser for LAS, and hence, the trade carries significantly less risk. For LAS, the haircut or loan provided against security as mandated by RBI is a 50% minimum. For MTF, it is up to 20%.

And the loan taken against a security (LAS) is not supposed to be put back in the stock markets.

Other charges

• Brokerage: 0.03% or ₹20, whichever is lower per executed order, same as intraday charges.
• Pledge charges: ₹30+ GST per ISIN per pledge, and no charges for unpledging.
• Square-off charges: ₹50 + GST per order squared off by Zerodha.

You can read our MTF policy here.