Have you ever encountered a situation where you had all the necessary information to make a good trade but missed it just because you were out of funds? If you knew about Margin Trading Facility (MFT), you would not face this problem.
For all the Swing and BTST traders who are looking for a good trade opportunity to enhance their trading experience in online trading, MFT can be beneficial. Let us understand the concept of MFT in-depth and how you can use it.
What is Margin Trading Facility (MFT) In Stock Trading?
Margin Trade Facility is for you if you wish more funds to trade with. MTF is a service that helps traders to borrow money from a broker to trade securities. You can place your buy order with a minimum required margin, and the broker will loan you the rest.
It is similar to a short-term loan facility. The borrowed money is generally provided by the broker that offers the MFT service. MTF is often used by day traders and other short-term traders looking to take advantage of small price movements in the market.
Using leverage, these traders can increase profits compared to buying or selling the instrument outright.
Benefits of MTF for Traders
The below benefits can be availed by opting for the margin trading facility.
1. Increased Leverage
Margin trading can help Swing and BTS traders to increase leverage by allowing them to trade on margin. This means they can trade with less money and, therefore, take on more trades. This can help them to make more profit, but only when they use it with the right skill sets.
2. Increased Buying Power
The margin trade facility allows you to buy more shares than you could if you were paying cash upfront. Traders typically get a 5x or 10x margin on the cash or the asset set as collateral for opting for margin trading. This increases the buying power.
This increased buying power gives you greater potential profits – but also greater potential losses. Thus, it is important that you keep in mind the risk involved in the assets you are trading.
3. Easier to Open a Trading Position
A margin trade facility allows you to open a position in a market with a smaller amount of money than you would need to if you were buying the asset outright. This is because you are only required to put down a margin, or deposit, which is just a fraction of the total value of the asset.
The rest of the value is provided by the broker. This allows you to take on a bigger position than you would otherwise be able to and potentially make a larger profit. Thus, providing the ease of opening a trading position.
For swing and BTS traders, the margin trade facility can be a helpful tool as they can use the facility to cover their trades with less capital. We hope that this article has been helpful to you in forming a beginner-level understanding of MFT.