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Margin based trading in stocks is not a new trend for many stalwarts who have been trading in stocks for decades now. During early 1990s until late 2000s this was a regular process in the stock broking industry but they were not regulated by the SEBI. Those days an Investor would get a margin based on stock holding in their demat account, which apparently led to many stock brokers misuse the investors money as they would provide large exposures without proper rules being followed.
Margin Trading Facility (MTF) is a facility offered to an investor in buying of shares and securities from the available resources by allowing the investor to pay a fraction of the total transaction value called a margin. The margin can be given in the form of cash or shares as collateral depending upon the availability with the respective investor. In short, it can be termed as leveraging a position in the market with cash or collateral by the investor. In this transaction the broker funds the balance amount
Features of MTF:
Investors who wish to avail the MTF need to undertake by signing/accepting additional Terms and Conditions.
It ensures that investors are completely aware of the risk and rewards of trading in it.
Allows investors to create leverage positions in securities which are not part of the derivatives segment.
The positions can be created against the margin amount which can be in the form of cash or shares as collateral.
Position can be carried forward up to T+N days (T = means trading day whereas N = means a number of days the said position can be carried forward).
Stocks allowed under MTF are predefined by SEBI and Exchanges from time to time.
Only registered stock brokers are allowed to offer MTF as per SEBI regulations.
Benefits for Investors:
MTF is ideal for investors who are looking for benefit from the price movement in short-term but not having sufficient cash balance.
Utilization of securities available in portfolio/Demat Account (using them as shares as collateral). Improve the percentage return on the capital deployed.
Enhance the buying power of the investors.
Prudently regulated by the regulator and exchanges.
Securities Eligible for Margin Trading
Securities Board of India (SEBI) and Stock Exchange(s) monitor tightly the securities eligible under the MTF and margin required (through cash or shares as collateral) on such securities are prescribed by them from time to time. Currently, the securities forming part of “Group I Securities” are included in MTF
Margin Call
The Client shall maintain the Maintenance Margin (70% of the Initial Margin) with SMIFS at all the times If the Client is intimated about the Margin shortage through any of the mutually agreed mode of communication, then the client shall make good such deficiency in the amount of margin placed with SMIFS. Margin call will be made if Margin available falls below 70% of the margin required.
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