Margin Trading Facility (MTF) Explained: How it Works, Costs and Risks

Margin trading facility, or MTF, lets you buy shares by paying only a part of the price yourself. The broker funds the rest and charges interest on it. This can increase both your gains and your losses. In this article, you will learn how margin trading facility works, what SEBI's rules say, what it costs and what can go wrong.

In short: Margin trading facility (MTF) is a SEBI-regulated service where a broker lends you part of the money to buy eligible shares, and you pay the rest as margin. The shares you buy are pledged to the broker as security, and you pay interest on the borrowed amount for as long as you hold the position. If the share price falls and your margin drops below the required level, you get a margin call, and the broker can sell the shares if you do not add money.

In a normal delivery trade, you pay the full price of the shares. In a margin trading facility, you pay only a part, called the margin. The broker pays the rest.

Here is a simple picture:

• You want to buy shares worth Rs 1,00,000.

• You pay a margin, say Rs 30,000 (the exact amount depends on the stock).

• The broker funds the remaining Rs 70,000.

• You pay interest on the Rs 70,000 every day until you sell or repay.

Unlike intraday trading, you can hold an MTF position for days or weeks, as long as you keep the margin at the required level. You can read a short definition of margin trading facility in our glossary.

MTF is regulated by SEBI. Brokers must follow these key rules.

MTF is allowed only for Group I securities. These are equity shares and equity ETF units that trade often and have low impact cost. Brokers usually publish their list of approved MTF stocks.

The initial margin is not a fixed percent. It depends on the risk of each stock:

• For Group I stocks that are in the F&O segment: VaR + 3 times the ELM.

• For other Group I stocks: VaR + 5 times the ELM.

VaR (value at risk) and ELM (extreme loss margin) are risk measures set by the exchange for each stock. So a riskier stock needs a higher margin.

You can pay the margin in cash, cash equivalents, or Group I shares and ETF units that you already hold (after a haircut, which is a cut in their value for safety).

The shares bought under MTF are pledged to the broker in the depository system. You remain the owner, but you cannot sell or move them freely until the broker's loan is repaid. Shares you give as margin collateral are also pledged. Learn what a pledge of shares is.

Only SEBI-registered stock brokers who meet SEBI's net worth and other conditions can offer margin trading facility, and they must get approval from the exchange.

Brokers must report their MTF positions to the stock exchanges every day. This helps the exchanges track the total borrowing in the market.

The main cost is the interest on the money the broker lends you. It is usually shown as a yearly rate but charged every day. The rate is set by the broker and differs from broker to broker.

• Normal trading charges: brokerage, STT, stamp duty and others. See our guide on demat account charges.

• Pledge and unpledge charges from the depository participant.

• Some brokers charge a fee to open or use the MTF account.

The numbers below are made up, only to show how margin trading facility works. They are not a prediction for any stock.

You buy shares worth Rs 1,00,000. You pay Rs 30,000 as margin, and the broker funds Rs 70,000 at a made-up interest rate of 15 percent a year.

Daily interest = Rs 70,000 x 15% / 365 = about Rs 28.8 a day.

Interest for 30 days = about Rs 863.

Now see what happens after 30 days in three cases.

Look at the last row. A 10 percent fall in the share price wipes out about 36 percent of your own money. This is how leverage works: it makes both gains and losses bigger. And even if the price does not move, the interest keeps reducing your money. Read more on how leverage multiplies risk.

If the share price falls, the value of your margin falls too. When it drops below the level the broker needs, you get a margin call.

• You must add money or more approved shares within the time the broker allows.

• If you do not, the broker can sell (square off) some or all of your shares to recover its loan.

• The sale can happen at a low price, and you bear the loss.

Prices can fall fast. In a sharp fall, the broker may sell before you have time to react.

You can learn more about intraday trading and about how to pledge shares for margin. If you want to see how an MTF account works on a trading platform, read the terms and charges first.

People who use margin trading facility usually want to hold a larger position than their own money allows, for a short to medium period. It is mostly used by experienced traders who track their positions daily.

Margin trading facility may not suit you if:

• you are new to the stock market,

• you cannot watch your positions often,

• you do not have spare money to meet a margin call,

• you plan to hold for a long time, since interest keeps adding up.

You can close a margin trading facility position in two ways:

1. Sell the shares: The sale money first repays the broker's loan and interest. The rest comes to you.

2. Pay the full amount: You pay the broker the funded amount and interest. The shares are then released from the pledge and become your normal delivery holding.

In June 2026, SEBI released a consultation paper to review the margin trading facility framework. As reported, it proposed:

• a higher minimum net worth for brokers who offer MTF,

• a cap on a broker's total MTF exposure linked to its net worth,

• letting more types of collateral be used for MTF.

These are proposals. The current rules continue until SEBI notifies any change.

These are points to think about, not advice to use or avoid MTF.

• Do you understand that you can lose more than you would in a normal delivery trade?

• Can you add money quickly if you get a margin call?

• Have you worked out the interest cost for the time you plan to hold?

• Is the stock on the broker's approved MTF list, and what margin does it need?

• Have you read the broker's MTF terms, interest rate and square-off policy?

Margin trading facility lets you buy eligible Group I shares by paying only part of the price, with the broker funding the rest at an interest cost. The shares are pledged to the broker, and the minimum margin depends on each stock's risk. Leverage makes both gains and losses bigger, interest adds up every day, and a falling price can lead to a margin call and a forced sale. Understand the costs and risks fully before you use it.

Ans. Margin trading facility (MTF) is a service where a broker lends you part of the money to buy eligible shares. You pay the rest as margin, the shares are pledged to the broker, and you pay interest on the borrowed amount until you sell or repay.

Ans. As per SEBI rules, MTF is allowed only for Group I securities, which are equity shares and equity ETF units that trade often and have low impact cost. Brokers publish their own list of approved MTF stocks.

Ans. The initial margin depends on the stock's risk. For Group I stocks in the F&O segment, it is VaR plus 3 times ELM. For other Group I stocks, it is VaR plus 5 times ELM. Riskier stocks need more margin.

Ans. You must add money or approved shares within the time your broker allows. If you do not, the broker can sell some or all of your shares to recover its loan, and you bear any loss.

Ans. Yes. MTF uses borrowed money, so a small fall in the share price can cause a large loss on your own money. You also pay interest every day. Returns are not guaranteed, and losses can be larger than in a normal delivery trade.

Facts and rules verified as of 3 November 2026.

• SEBI master circular for stock brokers: margin trading facility framework, including eligible Group I securities and initial margin of VaR + 3 or 5 times ELM.

• SEBI circular SEBI/HO/MIRSD/DOP/CIR/P/2020/28 (25 February 2020): margin pledge and re-pledge of securities.

• NSE: FAQs on Margin Trading Facility.

• SEBI consultation paper on the review of the margin trading facility framework (June 2026), as reported by Business Standard.

• The worked example uses made-up numbers only to explain the method.