Zerodha Launches a Trading Platform for Borrowed Funds

Nitin Konde, Varun Bhardwaj

Dec 19, 2024 — 2 min read

Zerodha Unveils New Trading Platform for Borrowed Funds

The margin trading feature (MTF), which Zerodha has introduced, enables users to trade on borrowed funds on the platform. Nithin Kamath, founder and CEO of Zerodha, said on X on December 19, "I don't know if it is a good time with the markets falling, but we are finally launching MTF (margin trading facility), which allows you to buy stocks for delivery by borrowing money from us." However, Zerodha cautioned against utilising MTF in its blog post. Its post stated that trade with caution because leverage is like a weapon of mass destruction, and MTF is a leveraged product.

Platform to Charge 0.04%

Zerodha claims that because keeping a stock purchased through an MTF has a cost, time is working against the user while engaging in a leveraged trade. It is important to mention that the platform will charge a daily fee of 0.04% of the funded amount. On the site, users are able to borrow up to 80% of the transacted value. "This reduces the potential profits the longer you hold," Zerodha stated. Speaking on the subject, Kamath claimed that clients who trade for delivery frequently overlook the effect of borrowing costs, which results in a larger loss. However, MTF has expanded significantly over the past three to four years, and almost everyone now offers it.

The Feature is Added on Demand

Given the extent of consumer demand for the feature, it aligned perfectly for Zerodha to roll out this new feature. With the launch of its new product, Zerodha anticipates a 30% drop in trades on its online broking platform due to the Securities and Exchange Board of India's (SEBI) new derivatives framework. Nonetheless, the business was able to increase its consolidated revenue from INR 6,832.8 Cr to INR 9,372.1 Cr for the fiscal year that ended in March 2024 (FY24), a 37.16% increase.

Sebi acknowledged the speculative nature of index derivatives trading on October 1 and issued a set of instructions aimed at lowering risks for retail traders in the F&O market. One of the main instructions is that option buyers must pay the premiums beforehand; formerly, traders could pay the premium after the trading day. Traders must now pay the entire premium at the time of order placement under the new regulation.

The market regulator has also implemented other significant steps, such as restricting weekly index expiries to a single exchange and raising the minimum contract size for index derivatives, which will make them less available to smaller retail traders. 93% of retail traders in the F&O category lost money between FY22 and FY24, according to a recent Sebi report, while only 1% of them made earnings of more than INR 1 lakh yearly. 89% of retail traders in the category lost money between FY19 and FY22, according to a previous Sebi survey.