Learn What Margin Trading is & How it Works

22 April, 2024

Margin Trading Facility (MTF) has revolutionized trading and investing in securities market, as it allows buyers to buy more than they can afford at a given point in time. Markets are volatile and this volatility offers both risk and opportunities. Whenever the stock market is low and you are speculating a better market condition in the future, you would want to invest more of your money in the concerned stocks. But as it happens in real life, not always we have enough liquid money to seize the opportunities, and here in comes the role of MTF.

With the launch of HDFC SKY – the stock market app of HDFC Securities availing MTF has become even more easier.

What is Margin Trading?

Whether you want to buy a large number of stocks or you want to buy a high-ticket stock with an initial capital of relatively smaller amount, margin trading facility of HDFC Securities, called BSPL makes it possible. With MTF you can borrow money from your broker with a margin requirement and repay the borrowed amount in instalments. Basically, MTF offers increased buying power.

BSPL – MTF of HDFC Securities

With margin trading facility of HDFC Securities, also called Buy Stocks Pay Later (BSPL) you can buy 4 times your capital investment. Say you have x amount of initial capital. With BSPL, you can buy 4x stocks where the remaining amount will be paid by HDFC Securities. It is also called E-margin. The amount that you borrow from HDFC Securities, it is to be repaid in instalments. The MTF interest rate with HDFC Securities is 12%. You can pay an E-margin up to T+275 days.

Why Choose BSPL?

You can buy and invest in stocks 4 times your available capital
You can buy high ticket stocks in case you do not have enough liquid money to invest
You significantly increase your chance of gaining higher ROI than what you would have earned without BPSL
You can hold on to the stocks for 275 days which gives you added time bandwidth to position your trades
With HDFC SKY – the all-in-one app of HDFC Securities, which also serves as the margin trading app, you can avail BSPL in clicks

How Does MTF Work?

To invest in stocks using MTF, you will have to choose BSPL. Then you invest as per your capital. This amount is 25% of the total investment. The remaining 75% is paid by HDFC Securities, which you will have to repay (along with the applicable interest) in instalments in T+275 days.

Until your position is settled a small interest of around 0.05% is charged for the delay.

Note that following SEBI guidelines, if stocks under bought under MTF, until they are squared off, they are to be pledged to the broker. The investor is required to pledge the stocks in exchange of the collateral margin. This margin pledge helps both the broker and investor to be in balance. As per the latest circular of SEBI, exchange traded funds (ETFs) can also be pledged as collateral.

How to Invest Using BSPL?

Here is how you can invest using BSPL – the margin trading facility of HDFC Securities:

Step 1 – Download the margin trading app HDFC SKY, which is the new age all-in-one broking app of HDFC Securities
Step 2 – Complete your account opening process if you are new user

Login to your trading account, if you are an existing user
Step 3 – Click on Buy and then choose your preferred stock exchange
Step 4 – Select the stock or the ETF that you want to buy
Step 5 – Select the product as “E-margin”
Step 6 – Click on “Know Your Margin” – this will show you your margin requirements
Step 7 – Place your order and track the status on your order book

Note that you can square off your transaction on or before T+275 days. For that, you will have to select “Open Positions”

With margin trading HDFC SKY, you can easily expand your investment horizon as well as the timeline of your trading positions. It can offer you higher ROI despite the interest rate that you have to pay out along with principal borrowed amount. It is easy, quick, comes with high profit potential, additional time to buy – thus the advantages are many. Only thing that should be kept in mind, is that you shouldn’t overspend and read the terms and conditions properly before investing.

*Terms and conditions apply. This is an information communication from HDFC Bank and should not be considered as a suggestion for investment. Investments in securities market are subject to market risks, read all the related documents carefully before investing.