Zerodha Rolls Out Facility For Users To Trade On Borrowed Money

Zerodha has launched margin trading facility (MTF) that will allow users to trade on borrowed money on the platform. 

“I don’t know if it is a good time with the fall in the markets, but we are finally launching MTF (margin trading facility) which allows you to buy stocks for delivery by borrowing money from us,” Nithin Kamath, founder and CEO of Zerodha, announced on X today (December 19).

However, on its blogpost, Zerodha has advised against using MTF. “Leverage is like a weapon of mass destruction, and MTF is a leveraged product, so trade with caution,” read the post. 

According to Zerodha, with a leveraged trade, time is acting against the user because there is a cost to holding a stock bought via MTF.

Notably, the platform will charge 0.04% of the funded amount on a per day basis. Users can borrow up to 80% of the traded value on the platform. 

“The longer you hold, the more this eats into the potential profits,” said Zerodha. 

Speaking on this, Kamath said that customers who trade for delivery tend to ignore the impact of the cost of borrowing which leads to a bigger loss. 

“But in the last 3 to 4 years, MTF has grown tremendously, with pretty much everyone offering it,” he wrote. 

According to him, considering the number of customers asking for the feature, it didn’t make them business sense to not offer it. 

Zerodha’s new product comes at a time when the company is expecting trades on the online broking platform to decline by as much as 30% on account of the Securities and Exchange Board of India’s (SEBI) new derivatives framework. 

However, for the financial year ending March 2024 (FY24), the company managed to grow its consolidated revenue by 37.16% to INR 9,372.1 Cr from INR 6,832.8 Cr in the previous fiscal.