Your broker will happily lend you money to buy more shares than your cash allows. In India this arrives under several names — MTF (Margin Trading Facility), margin against pledged shares, and intraday leverage — but they are all the same trade: you rent money, you pay interest, and you accept that a fall now hurts more than it used to.
Nobody is surprised that a ₹50 lakh home loan means paying interest every month, and that missing payments has consequences. You read the terms because the word "loan" was on them.
MTF is a loan at roughly 12–18% a year, but the app calls it "extra buying power" and shows it as a green number next to your balance. The interest is real, it accrues daily, and it is charged whether the trade works or not.
The three flavours you will meet
| Facility | What it is | Typical cost | The catch |
|---|---|---|---|
| Intraday leverage | Extra size for positions closed the same day | No interest — square off by close | Auto square-off near close at whatever price exists then |
| MTF | Broker funds part of a delivery purchase | ~12–18% a year, charged daily | Only approved stocks; interest compounds while you wait to be right |
| Pledging | Borrow against shares you already own | Interest plus pledge/unpledge fees | A haircut means ₹1,00,000 of stock gives far less than ₹1,00,000 of margin |
What leverage does to the same 10% fall
Leverage does not change your view. It changes the arithmetic of being wrong, and it does so asymmetrically — the gain is multiplied, but the survival is divided.
Push the loss slider past 40% and watch the gain needed to get back to even. Leverage is what moves you along this curve much faster than your analysis does.
The margin call
If the collateral behind a leveraged position falls far enough, the broker asks for more money. If it does not arrive, the broker sells — not at a price you chose, not at a moment you chose, and often into exactly the kind of falling market that caused the call in the first place.
- 1Price the interest into the thesis
A 15% funding cost means a stock that returns 12% a year loses money on borrowed funds. Leverage only makes sense when your expected return clearly exceeds the rent.
- 2Size from the borrowed total, not your own capital
If your rule is 1% risk per trade, that is 1% of your own equity — computed against the full position value, not the margin you put up.
- 3Assume the haircut worsens
Margin requirements rise in volatile markets. Leave enough headroom that a routine 10% market fall does not trigger a call.
- 4Never leverage a thesis that needs time
Borrowed money has a clock. A turnaround that takes three years to be recognised cannot be financed at 15% a year.
The tempting 2×
You have ₹5,00,000 and high conviction in a largecap you have researched properly. MTF would let you buy ₹10,00,000 of it at about 15% a year. Your thesis expects roughly 18% annual returns over three years.
You pledge ₹2,00,000 of a stock with a 30% haircut. How much margin do you receive?
Doston se paisa leke bike li, sochke ki resale mein fayda hoga. Bike ki keemat 10% giri — par udhaar toh poora dena hai, toh aapka apna nuksaan 20% ho gaya. MTF bilkul yahi hai, aur upar se 12–18% byaaj roz chadhta hai — chahe stock hile ya na hile.
- MTF, pledging and intraday leverage are all borrowed money with different labels.
- Leverage multiplies the outcome, not the accuracy — and it adds a bill that arrives regardless.
- A haircut means pledged shares provide less margin than their value, and the gap widens in volatile markets.
- The real danger is the margin call: it turns a recoverable paper loss into a realised one at the worst price.
- Borrowed money has a clock, so it cannot finance a thesis whose payoff needs patience.
Mark it done to track your progress through the curriculum.
Common questions
Short, direct answers to what people ask about this topic.
- what is haircut in pledging shares
- A haircut is the percentage withheld when you pledge shares as collateral, so ₹1,00,000 of stock may give you only ₹80,000 of usable margin. The size depends on how liquid and volatile the stock is — a liquid largecap might carry a 20% haircut while a volatile smallcap can be 50% or more. Haircuts widen when market volatility rises, which shrinks your available margin at exactly the moment you would least like it to.
- the reduction applied to the value of pledged shares before margin is granted is called
- A haircut. It is the buffer kept against the collateral itself falling in value, expressed as a percentage of the pledged shares’ market value — pledge ₹2,00,000 of a stock with a 30% haircut and you receive ₹1,40,000 of margin, not ₹2,00,000.
- what happens if I do not meet a margin call
- The broker sells the position or the pledged collateral to bring the account back within limits. That sale happens at whatever price exists at that moment, usually in the falling market that caused the call in the first place, so a paper loss you could have waited out becomes a realised one. This is the mechanism that turns a survivable drawdown into a permanent one.
- how much interest does MTF charge in india
- Broadly 12–18% a year at most Indian brokers, accrued daily on the borrowed portion and charged whether the trade works or not. Rates differ by broker and by how much you borrow. Holding ₹1,00,000 of borrowed exposure for three months at around 15% costs roughly ₹3,750 before the stock has done anything at all.
- if a stock falls 10% how much do I lose with 2x leverage
- 20% of your own capital, because the fall applies to the whole position and not just to your share of it. With ₹1,00,000 of your own money plus ₹1,00,000 borrowed through MTF, a 10% fall costs ₹20,000. At 4× intraday leverage the same 10% fall costs 40% of your capital, and interest sits on top of that.