₹1 trillion margin trading boom masks rising retail investor risk

Additional costs, such as interest, brokerage and haircuts on pledged shares, can materially impact returns

- Jash Kriplani [e-mail]

India’s margin trading market has crossed ₹1 trillion, underscoring a surge in leveraged stock buying even as risks for retail investors remain elevated.

Data from the National Stock Exchange shows outstanding funded positions across brokers have surpassed ₹1 trillion, highlighting the growing use of leverage in recent years.

The pitch is tempting: put in a fraction of the money, borrow the rest from your broker, and take a larger position in a stock you are bullish on. But the mechanics of margin trading facilities (MTF) carry risks that are easy to underestimate.

How it works

MTF lets investors buy stocks by paying a part of the transaction value upfront. Brokers fund the rest and charge interest on the borrowed amount, typically calculated daily. The upfront portion, or initial margin, can be met with cash or by pledging shares already held in a demat account. Investors effectively own the shares, but the position carries an interest cost for as long as it is held.

Not every stock is eligible. Only securities classified as Group I by exchanges—around 1,000 currently—can be bought or pledged under MTF. These are liquid stocks traded on at least 80% of days in the past six months. Maximum lending varies by investor, stock and broker risk policies, and access requires explicit opt-in through a broker's platform.

Leverage and costs

The exchange rules require investors to bring in 20-50% of the purchase value as margin, implying 2-5 times leverage. For a ₹1 lakh position, this translates to an upfront investment of ₹20,000-50,000, with the broker funding the rest. However, many brokers set higher margins depending on the stock, typically offering 2-4 times leverage.

Interest rates on the borrowed amount range from 9% to 18% per annum, depending on the broker. Some also charge pledging and unpledging fees when existing holdings are used as collateral.