What is MTF collateral and collateral margin?

MTF collateral refers to the securities (like stocks, ETFs, or mutual funds) pledged by an investor to avail funds under the margin trading facility (MTF). Instead of paying the full amount for a stock purchase, you can pledge eligible securities, and the broker lends you the remaining amount needed for the trade.

The pledged securities act as collateral or security for the borrowed funds. This allows you to trade with higher exposure while maintaining a margin, enhancing potential returns with managed risk.

Under MTF, only specific securities approved by the exchange can be pledged. Traders must choose stocks from exchange-approved lists to avail margin funding benefits against their holdings. You can check the list of stocks eligible for MTF by clicking here.

Equity collateral margin is the margin you receive after pledging shares, ETFs, or mutual funds minus a haircut applied by Arihant. In simple terms, your broker reduces the security’s value slightly and offers the remaining amount as a margin, which you can use for trading in stocks or derivatives.

Click here to view the applicable interest rates and charges for using the margin trading facility. Understanding the costs associated with margin trading is crucial. Interest rates, along with other charges, directly impact your profitability. Reviewing these details beforehand helps you make informed decisions and manage your trading expenses effectively.

Example:

You hold 100 shares of Infosys in your demat account. You want to buy more stocks but don’t want to use additional cash. Instead, you pledge your Infosys shares as collateral with your broker. Based on their value and Arihant’s margin policy, you are allowed to buy additional stocks worth ₹80,000 using MTF. Your pledged shares act as security for the borrowed amount.

Note:

When you pledge securities, a drop in their value can cause a margin shortfall. To maintain your position, you must quickly add additional funds or pledge more securities to meet the required margin and avoid liquidation.