ICICI Direct margin trading funding (MTF) is very useful when you are short of cash but still want to buy stocks in large quantities or trade big for short term gains.
Stock trading is the technique of making money through buying and selling stocks. To make decent profits from trading opportunities, you need enough capital to trade.
Putting small capital in trading keeps your risk lower but the profits made are also small. Sometimes, you may find more than one stocks to trade but the money in your trading account is small.
How to deal with such situations?
Cash leverage through margin trading is the answer to this problem. Margin means borrowed money for stock trading. Stockbrokers lend money to a margin account holder to buy more stocks with the limited cash available.
Short selling allows you to make money in falling markets by shorting a stock in intraday trading. You cannot short a stock in delivery trading. You need a margin trading account to get margin.
Earlier, margin trading funding was available to day traders only. However, now buying on margin is available to swing traders as well as positional traders also. However, short selling trade is not applicable for these traders.
Several leading brokers provide this margin trading funding, but I will be talking about the ICICI Direct margin trading funding here.
ICICIdirect.com is an online platform that offers access to a range of investment products for retail investors. They provide access to a wide variety of fixed income instruments, including government securities, corporate bonds, treasury bills, and other debt instruments apart from share trading in equities and mutual fund investments.
What Is Margin Buy in ICICI Direct?
Margin buy in ICICI Direct allows investors to borrow from the broker ICICI Direct and invest more money in stocks.t
This is an important tool for stock traders because it lets them take large trading positions in stock market with limited cash in their trading account. This strategy is used by professional traders and day traders alike.
Margin buying is an effective strategy for traders who want to take advantage of short-term market movements. This type of trading requires discipline and patience as well as knowledge of how to read charts and identify trends.
What Is ICICIDirect Margin Trading Funding (MTF)?
ICICI Direct Margins Trading Funding (MTF), launched by ICICIdirect, is an innovative trading facility offering investors the opportunity to trade on the basis on their own risk appetite with leverage.
This means that investors can choose to take more risk than they would normally be comfortable taking, while still having the comfort of knowing that they will not lose more than what they put into the account.
You can use leverage for intraday trading, swing trading or positional trading.
In intraday trading, the trading position created is closed or squared off before the end of the same trading session. For a swing trade and positional trade, the trading position is carried forward to next trading sessions.
In intraday trading with margin, you can get margin or loan by paying only 5% as the initial margin. With margin money of ₹ 2000, you can trade for up to ₹ 100,000. You can use icici direct margin plus trading facility to create even more limit.
In intraday trading, the profits are earned with small moves in stock prices. The trading position is closed quickly to avoid losses due to high volatility in stock prices. These small profits get multiplied to big profits with margin trading.
Advantage with intraday margin trading is that it allows you trade the stocks both ways, for upside or downside.
That means, you can buy a stock first in expectation of price rise and close at higher price with profits.
If you expect a fall in a stock price, you can first sell the stocks and later on buy back at lower price with difference in prices being your profit. This is called short selling.
In intraday trading, the trading position needs to be closed before the session of trading for that day ends. If not done by the trader, the trading position is closed automatically. This is done by the broker or the system 15 minutes before the market closes.
Margin trading funding or MTF is ideal for swing trading or positional trading. It is very useful when you expect your price targets to be met in next few days or weeks or months.
ICICI direct margin calculator helps you to calculate the margin money or cash needed to buy the required quantity of stocks at the last traded price (LTP) of that stock. You just need to enter the stock code and the quantity you want to buy in the calculator.
ICICI direct margin stock list includes majority of the exchange traded stocks.
The trader herself/himself can decide when to exit the trade. However, the position cannot be kept for unlimited time. There is a time limitation of up to 365 days.
The catch here is that you will have to pay the margin trading interest rates for the amount you borrowed from the stockbroker and time period you hold your position. Margin rates are around 0.5% per month for both the national exchanges, NSE as well as BSE depending on the brokerage plans.
Margin trading funding allows you only buying on margin. It does not allow short selling as in intraday trading or margin plus trading.
Another thing to keep in mind is the brokerage charges. In case of MTF, you are charged with the same rates as with delivery trading.
Brokerage rates are much higher for delivery trading as compared to intraday margin trading. Whereas for intraday margin trading, the usual brokerage rates are around 0.05%, for delivery, they are around 0.5%.
Brokerages are different for different brokers. ICICI margin brokerage rates are different for different plans. From as low as 0.07% to 0.55% is how much brokerage does ICICI direct charge for trading.
ICICIdirect has stopped using the terms broker mode and client mode recently. The later is now called as margin trading funding (MTF) while the former is simply intraday margin trading,
How Does It Work
Investors can open an account with ICICI direct online or at any branch of ICICI Bank Limited.
Once opened, the investor can deposit money into the account and then use the funds to buy securities.
The investor can also borrow against the securities held in the account.
What is Margin Plus in ICICI Direct
Margin plus in ICICI direct is an intraday product. It allows intraday traders to get higher cash leverage in intraday trading along with a provision to limit the losses by placing a simultaneous stop loss order.
Placing the stop-loss order simultaneously along with the market order reduces your risk automatically. The reduced risk in turn reduces your margin requirement as well, enabling you to get higher leverage while trading.
ICICI direct margin plus also provides you the option to protect your gains by placing a cover profit order at a limit price. The limit price is automatically executed when your profit price is reached.
The opposite order is instantly reversed once the profit price is reached. The automated application means that you do not need to monitor the markets on a continuously.
Margin Trading vs Delivery Trading
With cash trading or cash buying, you can buy the stocks only up to value of your cash holding.
Suppose you have ₹ 1,00,000 capital in your savings account. You want to buy a stock XYZ which is trading at a market price of ₹ 400 per share.
With cash buying, you can buy only 250 shares with that money. Your trade value would be 250X400=₹1,00,000. You would need to pay brokerage of ₹ 500 (assuming brokerage rate of 0.5%).
Suppose the stock prices move higher by 5% in near future. The share price of this stock would be now ₹ 420.
With that trade you end up making a profit of 250 X 20 = ₹5000. Your net gain would be 5000 – 500 = ₹ 4500 or 4.5% of your capital.
With margin trading funding, you can by nearly 3 times the stocks or 750. Now your trade value would be 750 X 400 = ₹3,00,000. The brokerage paid would be ₹1500 (with same rate as above).
If you expect the price to hit the target in a week or so, you can simply buy 750 shares in margin. When your targets are met, you now make a handsome profit of 750 X 20 = 15000.
The net gain would be 15000 – 1500 = ₹13500 or 13.5% (inclusive of interest charges which needs to be deducted from the net gains accordingly). It is 3 times of the profit you would have made with cash trading.
ICICI Direct margin trading funding is very good if you are short of cash at any time with a trading opportunity knocking at your door.
What about you? Do you use margin trading routinely? Which broker do you use?