MTF Calculator

A Margin Trading Facility (MTF) Calculator helps investors determine the additional buying power they can access by borrowing funds from their broker to purchase stocks. By inputting available funds and desired leverage, the calculator estimates the total trade value, required margin, and potential interest charges. This enables investors to make informed decisions about leveraging their investments to potentially enhance returns.

What is MTF?

MTF or Margin Trading Facility, is a service provided by stockbrokers that enhances your buying power in the stock market. It allows investors to purchase stocks even when they are short on funds by contributing a portion of the total trade value as a margin in cash or stocks as collateral. The broker funds the remaining amount at a predetermined interest rate.

This facility enables traders and investors to capitalise on market opportunities with limited upfront capital. By paying only a fraction of the total trade value, you can take positions in the market for an indefinite period, thus amplifying potential gains from market volatility. It’s a useful option for leveraging your investment capacity while benefiting from the broker’s funding support.

What is an MTF Calculator?

An MTF Calculator helps traders evaluate the financial implications of margin trading by calculating interest and brokerage costs including MTF charges. It shows the available leverage and the interest accrued over a specified period, making it easier to understand the total cost of borrowing. In India, SEBI mandates transparent disclosure of these charges, enabling investors to make well informed choices. By entering margin details, users can assess their buying power and accurately determine the costs using an MTF charges calculator, simplifying the process compared to manual calculations.

Understanding MTF with an example

Imagine you have ₹50,000 in your brokerage account. You want to buy stocks worth ₹1,00,000 but you don’t have enough funds. Through the Margin Trading Facility, you can borrow the remaining ₹50,000 from your broker.

Step by Step Example:

1. Initial Funds: You have ₹50,000 in your account.
2. Borrowing from the Broker: The broker agrees to lend you an additional ₹50,000, making your total available funds ₹1,00,000.
3. Purchase Stocks: You use the ₹1,00,000 to purchase 100 shares of a stock priced at ₹1,000 per share.

Now, you hold 100 shares and your total investment is ₹1,00,000.

Possible Scenarios:

1. If Stock Price Rises

• After some time, the stock price increases to ₹1,200 per share.
• Your 100 shares are now worth ₹1,20,000 (100 shares × ₹1,200).
• You sell all the shares for ₹1,20,000, making a profit of ₹20,000.
• However, you must repay the ₹50,000 loan plus interest (let’s say ₹2,000 interest).
• Profit Calculation:
  • Total money after selling shares = ₹1,20,000.
  • Subtract the amount you repay to the broker = ₹52,000.
  • Remaining = ₹1,20,000 – ₹52,000 = ₹68,000.
  • Subtract your initial funds (₹50,000) to calculate the net profit:
    ₹68,000 – ₹50,000 = ₹18,000 net profit.
• If Stock Price Falls:
  • If the stock price drops to ₹800 per share, your 100 shares are now worth ₹80,000.
  • You sell all the shares for ₹80,000, incurring a ₹20,000 loss.
  • You still need to repay the ₹50,000 loan plus interest (let’s say ₹2,000 interest).
  • Loss Calculation:
    • Total money after selling shares = ₹80,000
    • Subtract the amount you repay to the broker = ₹52,000
    • Remaining = ₹80,000 – ₹52,000 = ₹28,000
    • Subtract your initial funds (₹50,000) to calculate the net loss:

₹28,000 – ₹50,000 = – ₹22,000 net loss.

How to Use an MTF Calculator Online?

To use an MTF calculator online, follow these steps:

1. Select the Stock
   Choose the stock you wish to invest in. If the stock is not available, it means that leverage is not available for that particular stock.
2. Add Quantity
   Enter the quantity of the stock you intend to purchase.
3. Holding Period
   Input the holding period in days for the investment.
4. Input Funds and Duration
   Input the amount you are investing under ‘Your Fund’ and select the duration of the investment in days in the ‘Tenure’ field.
5. Expected Return
   Specify the percentage of the return you expect for the stock in the ‘Expected Return’ column.
6. Predetermined Fields
   Certain fields such as brokerage, required margin and funding amount are pre determined by the platform. The current market prices are auto-fetched from the market.

Once these fields are entered, MTF calculator will automatically display the margin you need to bring, the amount to be funded by the platform, the MTF interest rates and the payable interest amount. It will also show the total funds required for the transaction and the potential returns you can expect with margin trading.

Benefits of Margin Trading

Margin trading boosts your market potential with greater buying power and flexibility. While it offers the opportunity for greater returns, it also carries inherent risks due to the leveraged nature of the trades. Before diving into the benefits, it’s important to understand both the opportunities and risks that margin trading presents. Here is how margin trading can benefit you:

1. Increased Buying Power: Borrow funds to trade up to 4x your capital, expanding your market opportunities.
2. Cashless Trading: Use shares or ETFs as collateral instead of cash to create new positions.
3. Flexible Holding: Hold positions for as long as you want without time limits.
4. Higher Returns: Leverage allows for amplified profits when trades perform well.
5. Capital Efficiency: Keep more capital available for other investments while using margin for trading.
6. Quick Access: Take advantage of short term opportunities without waiting to accumulate funds.
7. Boosted ROI: Pay only 20% of the trade value while the broker funds the rest, enhancing net returns.
8. Affordable Trading: Low interest and brokerage costs make margin trading cost effective.

Disclaimer : The results given by the above calculator are for illustration purpose only. They are often based on a number of assumptions. The results given are in no way any guarantee of the returns that will be given. Investments in stock markets and securities markets are subject to market risks and other risks. There is no guarantee of the return that will be actually given. Investment in other financial products may also be subject to market risks and other risks. There is no guarantee of the returns that will be given by them. The calculator also does not make any recommendation directly or indirectly. Please consult a registered Financial Advisor before taking any investment decision.