I come across a wide range of people every day on various social media platforms who either use MTF or avoid it like a plague and there’s nobody in between.
MTF, simply put, is an instrument to amplify the results of your strategy. Now, as you might all know, delivery-based traders have a far better win rate as compared to F&O traders or intraday traders. The goal for most traders is to maximize trading profits through a style that is compatible with their personalities. Without that compatibility, I believe it is virtually impossible to trade profitably for the long term. For me, I have found placing swing trades and sleeping on them has provided with a result that I am satisfied with, since late-2017.
The first pre-requisite to trading MTF, is to have a proven profitable swing strategy which you need to develop on your own, because borrowed conviction is much more dangerous than options trading itself.
I’ll be dividing MTF applications and FAQs into 2 parts - investors and traders. Now, let’s understand how investors can benefit from it.
The markets have seen a pretty hard drawdown in recent times and thus there are pockets of value emerging in various sectors across various market caps. Now you have done your research and want to buy stocks that you will be holding for atleast 2+ years.
What you do is, buy that much value of stocks that you are SURE you can payoff with your extra income or savings, in the next 12 months. Let’s see the calculations:
Stock
X1Y2Z3
Cost of Position Month Wise
Month
Remaining Funded Position
Cost of Position
Funded Position Repaid
Pay-in Amount in Trading A/c
MTF Funded by Broker
65%
1
65000
667.68
5416
6084
Cash Funded by You
35%
2
59584
612.05
5416
6028
Position Value
1,00,000
3
54168
556.41
5416
5972
Dhan MTF Rate
12.5% p.a.
4
48752
500.78
5416
5917
5
43336
445.15
5416
5861
Months to Payoff
12
6
37920
389.51
5416
5806
Amount: You Funded
35,000
7
32504
333.88
5416
5750
Amount: MTF Funded
65,000
8
27088
278.25
5416
5694
Principal Repayment Per Month
5,416
9
21672
222.61
5416
5639
10
16256
166.98
5416
5583
Effective Cost of Position
4.4%
11
10840
111.35
5416
5527
12
5424
55.72
5424
5480
Total
4,340
65,000
Would you get a personal loan at this rate? Absolutely Not. MTF is cheapest and the best option for any long-term investor, especially during market crashes.
MTF for Traders would be posted in a while in the following comment.
Let’s say I have 10,000 Rupees in my trading account, and I choose to use the highest MTF leverage offered by my stock broker to buy Reliance shares.
Now, if the price of Reliance starts to drop from my entry price, I wonder how much of a percentage decrease would lead to my positions being automatically closed, especially since I won’t be adding any more money to my account.
Is this percentage drop variable the same for all stocks?
How can I figure out this cut-off percentage drop before making a MTF position?
is there a readymade facility available to calculate all these unknow variables before I take a MTF position?
Thanks. If this part of the MTF process was simplified and easier to understand, I believe that short-term retail investors like myself will feel more confident to join in on MTF trading.
@thisisbanerjee Case 1: Suppose my portfolio incurs a loss of 35%. Case 2:If the loss exceeds 35%, what actions does Dhan take in such scenarios? Will my positions close automatically Also, what exactly does margin shortfall mean?
Let’s consider this example:
I purchased stock worth ₹400, but I only have ₹100 in my account. The remaining ₹300 is funded via margin, on which I pay an interest of 12.49% p.a. I maintain only the interest amount in my ledger.
Now, if the stock falls by 40%, would I be required to bring in 65% + 5% additional margin as per Dhan’s risk management policy? Kindly confirm if this understanding is correct. If i miss any point kindly tell me.
Your margin trading position will be marked to market on a daily basis. Accordingly, at any point of time, if the holding coverage goes below 20% of the total portfolio, your holding will be liquidated. The holding coverage formula is :
Holding Coverage = Combined Ledger + Total Holding Value / Total Holding Value
In your example: (-300+240)/240 = 25%
So you will only receive an alert to add funds. Holdings will get squared off at 20% holding coverage. Hope this helps.
Can I understand this simply? If I use MTF for any position and the stock’s value falls by 20% from what I bought it for, will my positions be automatically closed?
Let’s say I have 10,000 rupees in my trading account and I won’t add more money.
I’m using the maximum amount I can with MTF and sticking with just that 10,000 rupees, without any additional funds in my account.
In the first scenario, I buy a MTF position in RELIANCE, which has a leverage of 4.17. If the price of RELIANCE drops by 20%, my position will close on its own.
In the second scenario, I choose a MTF position in IBULHSGFIN, which has a leverage of 2.00. If the price of IBULHSGFIN falls by 20%, my position will also close automatically.
So, no matter whether the leverage is 4.17 or 2.00, will my positions always close if there’s a 20% drop from the entry price?
I’ve seen a lot of videos about the MTF, and many people talk about daily interest charges, brokerage fees, and so on. However, no one seems to address this important point: it’s still unclear at what percentage drop in price the positions get closed.
When it comes to Intraday Trading with MIS leverage, everything seems clear-cut. However, when discussing MTF, people often get lost and struggle to understand it.
For Intraday MIS trading, If I begin with 10,000 rupees. If my Intraday Position’s MTM loss hits ~90% of 10,000, my positions gets squared off. So why isn’t MTF just as straightforward as this MIS leverage idea?
