Margin Trading Facility vs Intraday Trading

Among today’s market-savvy generation of traders, there are two dynamic avenues that are most popularly sought. One is Intraday trading, that most traders enjoy the most, and the other is Margin Trading Facility, which is a smart and cost-effective way to tap new opportunities in the market.

They share a simple common advantage: they both allow traders to capitalise on new positions even if there are limited funds at hand. But that’s also where the similarities end.

Fundamentally, MTF and Intraday trading are very different in how they work and what do they signify for traders and investors alike. So, for a comprehensive MTF vs Intraday Trading breakdown, we recommend you read on further and understand just how each of these trading solutions differ from each other.

MTF vs Intraday – In A Nutshell

MTF is short for Margin Trading Facility, which allows you to buy new positions in the market even with limited funds in your balance. You need to pay only a fixed percentage of the total value and the remaining will be paid by the broking house itself. This makes it almost identical to any conventional financing solution, with the condition of repayment of the whole amount plus interest.

Intraday trading, on the other hand, means a window wherein a trader can buy and sell shares or securities on the same trading day. It allows a trader to benefit from even the slightest price movements in the space of a single trading session.

The Fundamental Difference

So, now that we have defined what MTF and Intraday trading essentially mean, what is the key difference between them?

Intraday trading is concerned with selling off the same positions on the same day and even possibly in the same trading session. On the other hand, MTF is all about buying a position with even limited funds and holding on to them even for a considerable period.

Intraday is thus ideal for capitalising on short-term gains and MTF is about holding on to new opportunities for as long as possible to realise gains in the long run.

Now that you know the fundamental difference between trading in Intraday and availing MTF, it’s time to dive deeper and understand their other crucial differences.

Specific Differences

Let’s compare MTF and Intraday trading basis different criteria:

1. Holding Period: MTF orders can be held for days, weeks, or even months. Intraday orders must be settled within the same trading day itself.

2. Interest: MTF operates upon the principle of interest charged on repaying the amount but there is no interest to be paid in case of Intraday trading.

3. Suitability: Intraday trading is ideal for proactive traders such as day traders, who are also known as scalpers. MTF is ideal for medium-term investors and positional traders.

4. Risk of Margin Calls: Stocks which are bought in Intraday are automatically squared off at 3.15 pm, so there is no risk exposure for the trader overnight. However, for an MTF trader, there would always be some risk exposure till he is able to repay the amount borrowed.

5. Square Off: MTF trades can only be squared off when the trader or investor chooses to do so. On the other hand, Intraday trades get automatically squared off at the end of the trading day.

6. Ownership and Benefits: MTF traders and investors do actually own the shares or positions bought but these are also pledged as security for the amount borrowed. On the other hand, they are eligible for dividends.

Intraday traders are not entitled to ownership of the shares bought or sold. They simply deal in price movements without any delivery of shares.

Now that we have seen what distinguishes MTF from Intraday trading, it’s time to compare how they both work out for their respective target customer bases.

The Ideal Scenarios for MTF

When comparing MTF vs Intraday trading, it is pivotal to understand exactly the scenarios in which either of these financing solutions work better than the other. To begin with, below are the scenarios wherein MTF works best:

1.You might wish to buy a position in a stock with a medium-term view but with a higher exposure than your cash balance would permit.
2.You wish to hold on to a potentially rewarding position overnight.
3.You intend to leverage at a predetermined interest rate rather than try and generate more capital from an intraday position.
4.You intend to be entitled to benefits such as dividends and other ownership advantages of stocks that you will buy.
5.You are able to deal with margin requirements and keep a constant track of your portfolio’s price movements.

In each of these scenarios, Margin Trading Facility will work well and to a better effect than Intraday trading. It thus becomes a more natural choice for medium-term investors and delivery traders who are willing to hold on to positions and then act on them when the price and time are ripe.

The Ideal Scenarios for Intraday Trading

There are some specific trading scenarios wherein Intraday trading will work best. Let’s take a look at some of them.

1.If you are a trader who constantly monitors technical patterns, market developments or momentum signals within the space of a trading session in a day, then Intraday works as a great means to capitalise on all these trends and price movements.
2.If you are able to tap into the smallest of price differences that ensue in the course of a trading session, then Intraday would again work for you. However, this also requires that you have enough solid experience and knowledge of how markets move and how trades can be scalped or arbitraged.
3.If you wish to steer clear of any residue of risk and wish to start every trading day on a fresh note, then Intraday is ideal for you.

The Final Word

A really seasoned trader would be able to balance both Intraday trading and MTF as a dual-edged strategy in navigating even uncertain markets. However, one should bear in mind that a hybrid of Intraday and MTF would require many years of skill and intuitive insight to be executed seamlessly. Till then, one would be best advised to choose only one of the available alternatives.

Which one works best for you? It all depends on what is your risk appetite and what are your preferences when it comes to trading in the market.

If you are confident of your trading skill and willing to take on risks, Intraday would fetch some potentially lucrative opportunities. But MTF is also ideal if you are willing to explore new opportunities and even hold on to them for some time before they expire.

Moreover, MTF would also allow you to buy new positions without worrying about funds. The final choice, however, rests with you based on what is most ideal as a trading solution.