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In times of market volatility and stock specific events, you may witness changes in Margin Trade Funding (MTF) range provided by your broker on stocks eligible for MTF. The percentage of margin funding on stocks are decided by the broker based on various parameters, such as:
- The risk profile of the stocks, includes volatility, liquidity, price movement, market capitalization etc. Generally, higher the risk, lower the percentage of margin funding allowed by the broker on such stock.
- The regulatory framework of the stock, which includes its eligibility for margin trading by the Regulators, its inclusion in the Surveillance and monitoring list of the Exchanges, change in settlement type and its compliance with the various margining rules. Generally, stock(s) which are complying with the regulatory mandates are provided with higher percentage of margin funding as they are less risky.
- The demand and supply of the stock, which includes its availability for lending and borrowing, its popularity among investors and traders, and its market sentiment. Generally, higher the demand and lower the supply, the lower percentage of margin funding allowed on such stock.
These parameters may vary from broker to broker and from platform to platform, and they may subject to change depending on the market conditions, risk assessment and at the discretion of the broker.
Therefore, you should always check the latest percentage of funding range for each stock before using margin trading facility. You can also compare different offers and rates from different brokers and platforms to find the best deal for your needs.
By Vipul Jain, Head- Risk, Mirae Asset Capital