Margin Trading Facility, or MTF, is seeing rapid uptick among traders seeking amplified positions in the market. But as participation grows, Zerodha co-founder Nithin Kamath has cautioned that many are overlooking a critical cost component. While most traders fixate on interest rates, he pointed out that brokerage fees can quietly compound and push trades into loss territory, especially when positions are held for shorter durations or when price gains are modest.
In a post on X, Kamath wrote, “MTF is booming, but here’s the catch: many traders track the interest rate and ignore brokerage. Brokerage on MTF can add up faster than you think.”
Brokerage often ignored in the cost equation
MTF allows traders to borrow funds to increase their exposure to stocks.
Kamath pointed out that traders tend to focus on the daily interest charged on borrowed funds while underestimating the brokerage applied on each leg of the transaction.
Unlike interest, which is visible as a percentage per day, brokerage is often seen as incidental. Over multiple trades or even a single large transaction, however, the numbers can stack up quickly.
“MTF is a leveraged product, so you are already taking a significant risk. If you don’t pay attention to costs while using leverage, the math gets worse because your breakeven point moves higher for the trade,” Kamath said.
Cost difference across brokerages
Based on the illustration shared by Zerodha co-founder Nithin Kamath, the cost differences across brokerage structures can materially alter the total expense of an MTF trade.
Kamath used Zerodha charges to explain his concerns.In the example of a Rs 10 lakh purchase with Rs 5 lakh borrowed for 30 days, Zerodha’s model at 0.04% per day interest results in Rs 6,000 interest and Rs 40 brokerage for a single buy and sell, taking the total to Rs 6,040.
A hypothetical broker charging the same 0.040% daily interest but 0.10% per order without a cap would push brokerage to Rs 2,000, raising the total cost to Rs 8,000. Another at 0.03% daily interest but 0.20% per order would see total costs climb to Rs 8,500 despite lower interest.
Even a broker with slightly lower daily interest at 0.039% but a Rs 20 per order cap would bring the total to Rs 5,890. As Kamath’s comparison shows, brokerage structures can significantly change the breakeven point, sometimes outweighing small differences in interest rates.
However readers must remember that brokerage charges can vary depending on the brokerage house.
Short holding periods amplify the impact
According to Kamath, the impact of brokerage becomes more pronounced in trades with short holding periods or limited price movement. In such cases, the margin between profit and loss is already thin.
“Rule of thumb: on shorter holding periods and smaller price moves, brokerage can be the difference between breakeven and a loss,” he added.