Introduction

Do you want to increase your trading volume? Do you also want to retain your current holdings without liquidating them? Consider using pledge margin. It offers you a smart choice to maximise your trading potential, without selling your investments.

With pledge margin, you can obtain more trading capital by using your current stocks, bonds, or ETFs as collateral. The greatest benefit? You continue to hold your investments while earning more buying power.

This is particularly beneficial in the margin trading facility (MTF) setup. Under MTF, as a trade, you can hold leveraged positions for more than one day, which delivers flexibility and extended market exposure. By pledging your shares, you can access margin without deploying fresh capital – allowing you to make the most of short- to medium-term opportunities.

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Let’s break down how pledge margin and MTF in trading work together to empower smarter investing.

What is Pledge Margin?

A pledge margin is a facility that permits you to utilise the securities held in your demat account as collateral. This offers you access to a margin trading facility, allowing you to trade utilising borrowed capital while retaining ownership of your assets.

Here’s how it works: when you pledge shares, your broker applies a “haircut”- a percentage reduction that accounts for the risk or volatility of the security. The remaining value becomes your margin. The biggest benefit? You don’t have to liquidate your portfolio. You keep your long-term positions intact while using their value to tap into new market opportunities.

What is pledge margin if not the smartest way to increase trading flexibility without selling your best-performing stocks?

What is MTF? And Why Use a Pledge Margin for It?

The margin trading facility consents you to purchase stocks by paying only a part of the total trade value while the broker funds the remaining. In return, you pay interest on the borrowed amount. This facility is ideal if you are a swing trader or positional trader and desire more time than intraday limits allow.

You can pay MTF margin in cash. You can also use pledge margin to meet the required margin obligation. Instead of parking extra funds, you simply pledge your existing shares.

This process makes margin trading more efficient and accessible. Plus, the flexibility delivered by pledge margin permits you to tap into short-term trades. That, too, without interrupting your core portfolio. This is the essence of MTF in trading – leverage with control.

How to Pledge Shares for MTF (step-by-step)

The majority of brokers provide a quick and safe way to pledge shares. Here's how you can get going:

• Log in to your broker’s platform (either through the app or website).

• Navigate the “Pledge Shares” option within the margin or portfolio section.

• Select the eligible stocks you wish to pledge (only approved securities are allowed).

• Input the quantity of shares and review the available margin post-haircut.

• Authorise the pledge via an OTP verification (CDSL or NSDL will send this).

• The pledge margin is typically credited within minutes, making it almost real-time.

You can now use your freshly unlocked capital for MTF trades without having to spend any more rupees.

Charges and Risks to Watch Out For

While pledge margin is a powerful tool, it's essential to understand your associated costs and risks.

Costs

• Pledge/unpledged fees: Some brokers charge around ₹20 plus GST per stock pledge.

• Haircuts: These vary based on volatility. Riskier stocks have higher haircuts, which reduces the MTF margin available.

Risks:

• If the price of pledged shares drops, the broker may ask you for an additional margin.

• Failure to comply could result in the forced selling of pledged securities. This may impact your long-term investment goals.

For this reason, when using a margin trading facility, you need to keep an eye on the value of the shares you have pledged and maintain them reserved.

How to Utilise the Pledge Margin Ideally?

To wisely use your MTF pledge strategy, ensure to:

• Use only in case of short-term opportunities: Pledge margin works best for tactical transactions. That is when you have a proper exit strategy in place. Note that margin trading is not the right choice for long-term investments.

• Keep an eye on margin requirements: Set up alerts if there are any changes in pledge margin availability.

• Diversify your collateral: It makes no sense to pledge all your money into one investment. Instead, use an assortment of steady, low-volatile assets.

Sticking to the suggestions listed above allows you to use pledge margin as a bigger part of your trading strategy and not just as a tool.

Key highlights

• Pledge margin lets you unlock capital from existing shares without selling them, enabling smarter margin trading through MTF.

• By pledging approved securities, you access traditional funds for short- to medium-term trades while retaining your long-term holdings. However, understand the costs, such as haircut values and pledge fees and stay alert to price drops that could trigger margin calls.

• Used wisely, pledge margin amplifies trading flexibility and portfolio power.

Conclusion

Integrating pledge margin with the MTF trade unveils new avenues for active traders. You can enhance your buying power. That, too, without selling your existing investments. This enables you to maintain your portfolio's strength while capitalising on new market trends.

Whether you are exploring MTF in trading or looking to understand how to use pledge margin, the key is to remain informed, cautious and strategic. Leverage is a double-edged sword. However, with the right planning, it can be your most valuable trading ally.

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