Common Mistakes to Avoid While Using Margin Trading Facility (MTF)

Margin Trading Facility or MTF is a powerful tool that allows investors to buy more stock than they could afford using only their cash. In this term they are borrowing funds from their broker to boost returns, and it also carries significant risks when misused. So, if you decide to choose MTF you should have a proper knowledge and plan about it.  

This guide will help you to understand the most common mistakes traders make and offers practical tips to help you trade responsibly.  

1. Overleveraging Your Trades 

Many traders are tempted to maximize leverage simply because of its availability. But if you are using the full limit can lead you to dangerous situations. Borrowing too much magnifies losses if the market doesn’t go as per your prediction. Always use only as much leverage that you can comfortably manage and understand the consequences if the trade goes wrong. 

Tip: Start with conservative leverage and scale up as you gain experience. 

2. Ignoring Maintenance Margin Requirements

MTF always maintains both upfront and maintenance margin levels so you must be met it consistently. If your equity drops below the required minimum, your broker issues a margin call, if your failure to respond it can result in forced liquidation of your holdings. Many traders lose capital because they weren’t proactive about tracking margin needs. 

Tip: Monitor your margin daily and maintain a buffer to avoid auto sell-offs.  

3. Ignoring Interest Charges on Borrowed Funds

You should understand that MTF isn’t free to anyone, an interest is charged on the loan each day. The interest cost adds up quickly for long-held positions. Investors often forget to factor in interest when calculating potential profit. 

Tip: Use MTF for short to medium-term positions.  

4. Not Using Stop-Loss Strategy

We know that MTF amplifies both gains and losses, so, without stop-loss orders you face many difficulties. Like, if the stock moves in the wrong direction, you could end up losing a lot more money than expected. And some emotional decisions will delay exits and lead to bigger losses. 

Tip: Before starting MTF trade make sure to set your stop-loss and profit target. 

5. Ignoring Stock Haircuts and Liquidity Risk 

In MTF, not all stocks are valued the same. Some have a “haircut,” which means the broker reduces their value by a certain percentage to cover risk. For example, if a stock has a 20% haircut, only 80% of its value will be considered for your margin. 

Tip: Check the haircut % before making purchase and avoid low-liquidity or high-volatility stocks on margin.   

6. Acting on Tips Instead of Research 

Margin amplifies risk-trading on unverified tips is especially dangerous. Many investors take MTF leverages positions based on tips rather than solid analysis. The lack of technical or fundamental planning will lead to losses.  

Tip: Only use margin for trades where you’ve conducted solid analysis and aware about upside/downside. 

7. Not Understanding MTF-Eligible Stocks & Constraints 

You must understand that brokers only allow certain stocks under MTF, so if you aren’t checking the eligibility can cause last-minute issues. Some traders face these issues like; they buy stocks that later turn out to be ineligible for margin financing. Each stock has specified volume requirements, interest rates etc., so evaluate them in the first stage.

Tip: Verify that your selected stock is on your broker’s MTF list before placing it.

8. Falling To Monitor Positions & Margin Calls 

Your positions required active monitoring, because the market is always unpredictable so collecting the updates is necessary. The market swings or interest deductions will rapidly make changes to your margin position.  

Tip: Set up real-time notifications and check trading dashboards at least twice daily. 

9. Holding MTF Positions Too Long 

The longer you hold MTF positions will increase the cumulative interest. As we said that MTF is suitable for short to medium trading, so holding them long turns leverage into a disadvantage.  

Tip: Close leveraged positions within days or weeks, not months, unless if you’re confident the gains offset the interest.  

10. Believing MTF is a Shortcut to Easy Profits 

Many traders believe that MTF is a quick path to wealth, but leverage is neutral, it amplifies both success and loss. So, overconfidence and ignoring basic risk principles lead to major account wipeouts.  

Tip: Treat MTF as a tool for disciplined strategy.  

Conclusion

Margin Trading Facility can empower investors to magnify their returns, but if you aren’t planning it effectively that has negative impacts. By understanding and avoiding the common mistakes like overleveraging, ignoring stop-losses and not managing your fund- you can protect your capital more confidently. Keep in mind that smart trading isn’t an easy one, it’s also about managing risk wisely.  

If you’re ready to explore MTF with professional support and powerful tools, open a free account with Navia today. Trade with confidence, track your positions with ease, and grow your trading journey the smart way. 

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DISCLAIMER: Investments in the securities market are subject to market risks, read all the related documents carefully before investing. The securities quoted are exemplary and are not recommendatory. Brokerage will not exceed the SEBI prescribed limit.