Sun Sep 15 16:32:32 UTC 2024: ## Margin Trading Facility Flourishes Amidst Bull Market

**Mumbai, India:** The surge in equity markets has fueled a significant growth in the Margin Trading Facility (MTF), a product offered by brokers that allows investors to leverage their investments up to five times. According to industry estimates, the total value of MTF transactions has swelled to ₹80,000 crore, a 55% increase in the past eight months alone. This represents a threefold increase from March 2022.

The expansion of MTF is attributed to several factors, including the rise in the number of direct equity traders and a growing number of brokers offering the facility. “The growth in MTF books is a direct result of market growth and the increasing number of clients trading directly in equities,” said Pranav Haridasan, Managing Director & Chief Executive Officer of Axis Securities. This trend is evidenced by the surge in demat accounts, which reached 171.1 million in August, with 4.23 million new additions.

MTF has proven to be a lucrative opportunity for brokers, as investors capitalize on the amplified returns offered by leveraged trading. “Investors have been able to make more money than the interest outflow, significantly enhancing their return on capital,” stated Dhiraj Relli, MD & CEO, HDFC Securities.

Despite interest rates ranging from 9.75% to 20.49% per annum, investors continue to utilize MTF, driven by the potential for higher returns. However, the leverage offered is subject to strict regulations, with margin requirements based on the liquidity profile and quality of the underlying stock. Only a select group of large and mid-cap stocks with high liquidity are eligible for MTF, mitigating systemic risks.

The rise in MTF books has also increased the financial leverage of brokers, who rely on borrowed funds to meet the margin requirements. This practice, though subject to regulatory caps, raises concerns about potential volatility and risk.

“The brokers fund this amount in two ways: 50 per cent out of their net worth and the rest by way of borrowed funds,” explained Relli. “Commercial papers continue to remain the cheapest form of borrowing.”

The Adani Group crisis last year highlighted the volatility of MTF books, leading to a 30-40% decline in broker balances. While MTF offers significant opportunities for investors, it remains a high-risk endeavor, with potential for both substantial gains and losses.

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