An MTF stands for Margin Trading Facility, and it allows an investor to buy stocks on credit from his broker, with his existing shares or cash being collateral. The advantage of this facility is that a person can get more exposure to the markets even when one's capital is not fully utilized. While MTF improves the possibility of returns, at the same time, it increases risk. Managing risk is an important thing, as one can lose more than an investment.

Interest cost will attach to an amount borrowed on MTF for every transaction. It is important for every investor to be aware of interest rates and how often these are computed, as well as repayment obligations, before trading. Holding for even very short periods can impact the cost upon exit. The MTF calculator can help in approximating how much interest would apply in other durations and give direction on the terms of the trade duration.

Sharply fluctuating prices in the stock market quickly erode borrowed positions. A stop-loss order will automatically close the position if the price falls to a predetermined level, thus limiting potential losses. Apart from which stop-loss levels will be used, the investor using MTF should also learn up front the risk that he is willing to tolerate in terms of entering into a particular trade.

MTF allows this increased buying of shares with less capital in exchange to result in more profit; however, over-leveraging would make one even more susceptible to small price swings. If the market suddenly turns against this trade, it can cause a liquidity crisis in case too much of the capital allocated to the leveraged positions is too much. The leverage exercises moderation on all strengths under conditions where the market reacts very wildly.

Steady or predictable price behavior generally benefits the leveraged positions. High volatility or stable prices in illiquid stocks leave a gap where an abrupt price movement may trigger margin calls. Looking for a stock that has relatively consistently traded volumes with moderate price movements reduces the risk of sudden unexpected losses while committing it to MTF. Historical price patterns are reviewed before committing to an MTF position to clarify the expected risk levels.

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