NSE Margin Trading Facility: How It Can Enhance Your Intraday Trading 

The National Stock Exchange (NSE) of India provides a service to investors that allows them to purchase stocks by borrowing money from their broker. This service is known as the “NSE margin trading facility.”

Whether you are about to open a demat account or are a seasoned trader, you should know how this service can help you with intraday trading.

How Can The Nse Help You With Intraday Trading?

If you are into intraday trading, you can utilise the margin trading funding provided by your broker. Using this facility, you can buy or sell shares on an intraday basis for more amount than your own funds allow.

You may wonder how you can do it. It is simple, as you can borrow from your stockbroker to do so. But, what is the role of the NSE in such transactions? The NSE facilitates stock market transactions, including intraday trading.

Hence, when you sign up with a broker, you need to ask him for a list of stocks, which the NSE allows you to trade with margin trading. At times, the NSE does not allow traders to take positions in certain stocks by using margin. You will not be able to take intraday positions in such stocks using margin with the NSE.

For example, in July 2024, the NSE announced that 1,010 stocks would no longer be eligible to be offered as collateral in margin trading funding. In other words, you can no longer trade in these stocks using margin. Some of these stocks belong to famous companies, such as Yes Bank, Adani Power, Bharat Dynamics, Suzlon, and Paytm.

Further, from August 1 2024 onwards, the NSE guidelines allow people to use margin for trading in only those stocks that are traded on a minimum of 99% of the days in the previous six months and have an impact cost of up to 0.1 percent for a ₹1 lakh order.

If a stock meets this criteria, you can use the margin trading facility offered by your broker to take an intraday position in it. 

How Can You Use Margin For Intraday Trading?

The first thing you need to check is whether the NSE allows you to use margin to trade a particular stock. After that, you need to request your broker to allow you to use margin for intraday trading.

Margin trading means borrowing funds from your broker to take a bigger position than your funds permit. Let us take an example to see how it works for an intraday position. Suppose you notice that a stock X is trading at ₹1,000 at 1 PM. You think that it will go up. You want to buy 30 stocks of X; hence, you need ₹30,000. But, you have only ₹10,000 in your trading account.

You can use margin trading to borrow the remaining ₹20,000 from your broker to buy 30 stocks of X. Let us say that the price of X rises to ₹1,200 by 2 PM. If you decide to sell it, you will make a profit of ₹6,000 by investing only ₹10,000 of your own, which translates to a whopping 60% profit. This is how the NSE margin trading facility can help you magnify your profits.

However, what if the price of X falls to ₹800 by the time the market closes. In that case, you will incur a loss of ₹6,000 on your capital of ₹10,000, which means a massive 60% loss. Hence, a margin trading facility can also amplify your losses.

Conclusion

No doubt that the NSE margin trading facility can help you earn huge profits, but it can also make you incur sizeable losses. You should avail of this facility only if you have deep knowledge of the stock market and know the direction that the market is likely to take.

Frequently Asked Questions

Q1: What is Margin Trading Facility (MTF) in the NSE?
A: Margin Trading Facility (MTF) allows traders to borrow funds from their brokers to buy securities in the stock market. It enhances purchasing power, enabling traders to take larger positions with only a fraction of the required capital upfront. MTF is particularly beneficial for intraday trading, where positions are squared off within the same trading day.

Q2: How does MTF enhance intraday trading?
A: MTF provides traders with additional leverage, allowing them to amplify their trading positions. For example, instead of using ₹10,000 for a trade, MTF could enable the trader to take positions worth ₹50,000 or more, depending on the broker’s leverage ratio. This increases the potential for higher profits in successful trades, making it an attractive tool for intraday traders.

Q3: What are the eligibility criteria for using MTF?
A: To use MTF, traders need to meet certain criteria set by brokers, such as maintaining a minimum margin requirement, having a demat and trading account, and ensuring proper documentation. Brokers also assess the risk profile and financial standing of the trader before offering this facility.

Q4: What are the risks involved with MTF in intraday trading?
A: While MTF offers opportunities for larger profits, it also involves higher risk. Losses can be magnified due to leverage, and if the market moves unfavorably, traders might need to deposit additional margins or face forced liquidation of their positions by the broker. Traders should carefully manage risk and use stop-loss orders.

Q5: How much margin do I need to trade using MTF?
A: The margin required varies depending on the stock and the broker. Typically, traders are required to provide a percentage of the total trade value as margin, which could range from 10% to 25%. The remaining amount is financed through the margin trading facility provided by the broker.