Business · Markets · 1 hr ago
Indian investors shift from derivatives to broker-funded stock trades
In India, investors are turning to broker-funded stock purchases as trading derivatives becomes less attractive.
Through margin trading facilities, brokers lend clients part of the money needed to buy shares, while clients pay the rest.
The National Stock Exchange’s industry-wide margin-trading book grew 52% in a year to ₹1.51 trillion by the end of September.
Higher taxes, larger minimum contract sizes, tighter safeguards and fewer weekly expiries have raised the cost or difficulty of derivatives trading.
Brokers typically fund 60-70% of the required margin and charge annual interest of 9-12%, sometimes up to 14%; they can sell a client’s position if a margin shortfall is not met.
The shift is helping brokers offset weaker trading income, while investors take on the risk that a stock’s price will fall.
Brokers expect funding activity may get a further boost if India’s market regulator, Sebi, expands the funding sources they can use.
Indian retail and wealthy investors are increasingly using broker-funded stock trades as they move away from derivatives.
The industry-wide margin trading facility book on the National Stock Exchange rose 52% year on year to ₹1.51 trillion at September-end.
Higher transaction taxes, larger derivatives contract sizes, tighter safeguards and changes to weekly expiries have made derivatives less attractive to some investors.
Brokers typically fund 60-70% of the margin needed to buy a stock, with clients covering the rest.
The shift is helping brokerages offset weaker income from trading activity.
- Who
- Retail and wealthy investors are shifting toward broker-funded stock purchases. Brokers provide the funding.
- What
- The use of margin trading facilities to take leveraged positions in stocks is growing as derivatives trading slows.
- When
- The industry-wide MTF book reached ₹1.51 trillion at September-end, up 52% from a year earlier.
- Where
- India, with 95% of the industry-wide MTF book in shares traded on the National Stock Exchange.
- Why
- Higher transaction taxes, larger minimum derivatives contract sizes, tighter safeguards and changes to weekly expiries have made derivatives less attractive.
This story does not have two clearly opposing sides.
Angel One’s MTF book was lower than its September-end level, and the broker added 72,000 MTF clients during the period reported.
Average daily turnover in index futures fell over 30% year on year to ₹15,578 crore.
The industry-wide NSE MTF book reached ₹1.51 trillion, up 52% from a year earlier.
- NSE industry-wide MTF book
- ₹1.51 trillion at September-end
- Year-on-year MTF growth
- 52%
- Broker funding share
- 60-70% of the margin required to buy a stock
- Angel One MTF book
- ₹8,210 crore at September-end
- Groww MTF book
- ₹4,351 crore at September-end
What people are saying
We are witnessing a gradual structural shift in retail participation towards cash equities and margin-funded investing.