Written By: Muhit Masood
In the world of equity trading, Margin Trading Facility has emerged as a significant concept, enhancing trading volumes and interest from leveraged traders. This has lead to increasing interest from shariah compliant equity traders on whether such Margin Trading Facility is Shariah compliant. This article delves into the nuances of Margin Trading Facility and explores the Shariah concerns associated with these practices.
What is Margin Trading Facility?
Margin Trading Facility refers to the practice where equity traders borrow funds from a stock broker to buy stocks and provide the stocks bought as collateral. This allows equity traders to amplify their purchasing power, enabling them to buy more stocks than their own capital. The borrowed amount is typically subject to interest charges, and the trader is required to repay the loan, regardless of the trade’s outcome.
Key Features:
- Leverage: Traders can buy more stocks with a small amount of capital by borrowing from the broker.
- Interest Charges: Borrowed funds incur fees, charges or interest, which must be repaid.
- Collateral: Existing investments or stocks bought through MTF serve as security for the loan.
- Duration: It is mutually decided between the broker and the trader. Most MTFs are usually for upto 30 days.
How is Margin Trading Facility Different from Intraday Trading?
Margin Trading involves borrowing funds from a broker to trade, typically incurring interest charges. This practice is prohibited in Islam because it entails riba — paying interest on borrowed money or loans—which is explicitly forbidden in the Holy Quran and Hadith of the Prophet (peace be upon him).
MTF is typically extended by brokers for intra day trading. This means the trader can borrow from the broker to trade stocks during the day, but before the end of trading day, the borrowed money should be returned back to the broker.
But MTF can be availed for a period of more than one day trading as well. Indian stock brokers allow MTF to be carried for upto 365 days as well.
On the other hand, Intraday Trading, or day trading, entails buying and selling financial instruments within the same trading day. If you buy a Shariah compliant stock first and then sell it, this is considered permissible. If the buy and sell happens on the same day (intra-day), it is still permissible – the simple reason is if you have bought it, and fulfilled all the conditions of ownership, you are the full owner of the same. Hence you have the full right to sell it too, even if the buy and sell transaction happens the same day or even within seconds or minutes.
However, Short selling trades are not-permissible as you have sold something which you have not bought/own i.e. sold something that you are not the rightful owner of.
Intra-day – Buy first and then sell – can also be done using leverage provided by the broker. Intra day trading using leverage or Margins is permissible from a Shariah perspective. But it should entail that ownership of stocks should be with the trader while taking leverage or borrowing from the broker. Secondly, such borrowed funds from the broker should be interest free.
Shariah Concerns Surrounding Margin Trading Facility
Islamic finance principles are grounded in prohibitions against:
- Riba (Interest): Margin Trading Facility (MTF) is not considered halal in Islam primarily because it usually involves borrowing funds with interest, which is prohibited in Islamic financial rules.
Key Issues with Margin Trading Facility:
- Interest Payments (Riba): The interest charged on borrowed funds in Margin Trading Facility is a direct violation of the prohibition against riba. This makes conventional Margin Trading Facility impermissible under Shariah law.
- Additional Charges for MTF trading: A broker may extend MTF without charging any interest. But for trades conducted using MTF, they may charge a different brokerage fee or trading fee than normal cash trades. This differential cost for a trade done using MTF is also considered akin to interest. This is because any additional charges or income or fee imposed on the basis of borrowed funds is akin to interest charges under Shariah Law.
Let us look at some of the largest platforms in India and globally who offer Margin Trading Facility as an option to study their study compliance.
1. Zerodha:
Margin Trading Facility (MTF) provided by Zerodha is not compliant as per Shariah standards.
Interest Charges: 0.04% per day (₹40 per lakh) on the funded amount. The interest is applied from T+1 day until the stocks are sold.
Source: https://support.zerodha.com/category/trading-and-markets/margins/margin-trading-facility/articles/margin-trading-facility-mtf-faqs
2. Upstox:
The Margin Trading Facility (MTF) allows you to purchase stocks by providing only 25% to 50% of the required funds. Upstox covers the remaining amount for a nominal fee of ₹20 per day, plus brokerage charges of up to ₹20 per order.
Interest Charges: ₹20/day for every slab of ₹40,000 taken as MTF. Interest charges are applicable per day until you exit the MTF position or until repayment.
Hence, Margin Trading Facility (MTF) provided by Upstox is not compliant as per Shariah standards.
Source: https://upstox.com/help-center/are-margin-trade-facility-mtf-orders-chargeable-251428/
3. Groww.in:
MTF allows you to buy stocks by paying only a portion of the total cost (25%) upfront, while Groww funds the remaining amount as a loan.
Interest Charges: 0.043% per day, Charged on the total amount funded by Groww.
Hence, Margin Trading Facility (MTF) provided by Groww is not permissible as per Shariah standards.
Source: https://groww.in/stocks/mtf
4. Dhan:
Margin Trading Facility (MTF) allows equity traders to take up leveraged positions. What this means is simple – the trader will pay a fraction of the position value while the broker funds the remaining amount. At Dhan, we give up to 4X leverages on 850+ stocks.
Interest Charges: 0.0342% per day, charged based on the funded amount provided by Dhan. The interest is calculated daily and posted weekly.
Hence, Margin Trading Facility (MTF) provided by Dhan is not compliant as per Shariah standards.
Source: https://knowledge.dhan.co/support/solutions/articles/82000900207-what-is-the-interest-rate-charged-on-margin-funding-
5. Wealthsimple Trade:
Margin Trading Facility (MTF) provided by Wealthsimple Trade is Not Compliant as per Shariah standards.
Interest Charges: Wealthsimple’s margin account prime rates are 4.95% for CAD and 7.5% for USD annually.
Source: https://www.wealthsimple.com/en-ca/self-directed-investing/margin
6. Webull:
Margin Trading Facility (MTF) provided by Webull is Not Compliant as per Shariah standards.
Interest Charges: Webull’s margin account standard rates are 8.74% annually.
Source: https://www.webull.com/trading-investing/margin
7. E-Trade:
Margin Trading Facility (MTF) provided by E-Trade is Not Compliant as per Shariah standards.
Interest Charges: E-Trade’s margin interest rate ranges between 11.2%-13.2% annually.
Source: https://us.etrade.com/what-we-offer/pricing-and-rates
8. Alpaca:
Margin Trading Facility (MTF) provided by Alpaca is Not Compliant as per Shariah standards.
Interest Charges: Alpaca’s annual margin interest rate is 7.5%.
Source: https://alpaca.markets/support/determine-margin-account
9. TradeStation:
Margin Trading Facility (MTF) provided by TradeStation is Not Compliant as per Shariah standards.
Interest Charges: TradeStation’s annual margin interest rate ranges between 11.5%-12.5%.
Source: https://www.tradestation.com/pricing/margin-rates/
10. Tradier:
Margin Trading Facility (MTF) provided by Tradier is Not Compliant as per Shariah standards.
Interest Charges: Tradier’s margin interest rate is 9.5% annually.
11. Charles Schwab:
Margin Trading Facility (MTF) provided by Charles Schwab is Not Compliant as per Shariah standards.
Interest Charges: Charles Schwab ‘s annual margin interest rate ranges between 10.825%-12.575%.
Source: https://www.schwab.com/margin/margin-rates-and-requirements
12. Alice Blue:
Margin Trading Facility (MTF) provided by Alice Blue is Not Compliant as per Shariah standards.
Interest Charges: Alice Blue’s margin interest rate is 0.049% per day for 365 days, or 18% annually.
Source: https://aliceblueonline.com/f/margin-trading-facility/
13. Angel One:
Margin Trading Facility (MTF) provided by Angel One is Not Compliant as per Shariah standards.
Interest Charges: Angel One’s margin interest rate is 0.041% per day for 365 days, or 14.99% annually.
Source: https://www.angelone.in/margin-trading-facility
14. AxisDirect:
Margin Trading Facility (MTF) provided by AxisDirect is Not Compliant as per Shariah standards.
Interest Charges: AxisDirect ‘s margin interest rate is 18% annually.
Source: https://simplehai.axisdirect.in/dynamicWeb/BMPL/E-MarginWO.html
15. Nuvama:
Margin Trading Facility (MTF) provided by Nuvama is Not Compliant as per Shariah standards.
Interest Charges: Nuvama’s margin interest rate is 0.55% per day.
Source: https://www.nuvamawealth.com/our-pricing
16. Fisdom:
Margin Trading Facility (MTF) provided by Fisdom is Not Compliant as per Shariah standards.
Interest Charges: Fisdom’s margin interest rate is 2% per month.
Source: https://www.fisdom.com/pricing-web/
17. 5paisa:
Margin Trading Facility (MTF) provided by 5paisa is Not Compliant as per Shariah standards.
Interest Charges: 5paisa’s margin interest rate is 0.045% per day.
Source: https://www.5paisa.com/brokerage-charges
18. FundzBazar:
Margin Trading Facility (MTF) provided by FundzBazar is Not Compliant as per Shariah standards.
Interest Charges: FundzBazar’s margin interest rate is 0.5% per day.
Source: https://www.fundzbazar.com/mtfpolicy
19. HDFC Securities:
Margin Trading Facility (MTF) provided by HDFC Securities is Not Compliant as per Shariah standards.
Interest Charges: HDFC Securities’ margin interest rate is 12% per annum.
20. ICICIdirect:
Margin Trading Facility (MTF) provided by ICICIdirect is Not Compliant as per Shariah standards.
Interest Charges: ICICIdirect’s margin interest rate starts from 9.69% per annum.
Source: https://www.icicidirect.com/equity-products/margin-trading
21. IIFL Securities:
Margin Trading Facility (MTF) provided by IIFL Securities is Not Compliant as per Shariah standards.
Interest Charges: IIFL Securities’ margin interest rate is 15-18% per annum.
22. Kotak Securities:
Margin Trading Facility (MTF) provided by Kotak Securities is Not Compliant as per Shariah standards.
Interest Charges: Kotak Securities’ margin interest rate starts from 9.75% per annum.
Source: https://www.kotaksecurities.com/margin-trading-facility/
23. Motilal Oswal:
Margin Trading Facility (MTF) provided by Motilal Oswal is Not Compliant as per Shariah standards.
Interest Charges: Motilal Oswal’s margin interest rate is 0.053% per day.
As you can see in the above cases, the funds for MTF provided by these platforms entail Interest (riba), which makes the MTF seem averse to the Shariah guidelines.
Alternative Structures:
To align with Shariah principles, some financial institutions offer:
- Islamic Margin Trading Accounts: These accounts operate on a swap-free basis, eliminating interest charges.
- Profit-Sharing Models (Mudarabah): Instead of interest, profits are shared between the investor and the broker based on a pre-agreed ratio.
Conclusion
While Margin Trading Finance (MTF) can amplify returns, it fundamentally involves interest-bearing loans (riba), which are explicitly prohibited in Islam. Additionally, it introduces excessive risk (gharar) and speculation (maisir), further conflicting with Shariah principles. As demonstrated by leading platforms like Zerodha, Upstox, Groww, and Dhan, MTF typically includes daily interest charges, making it impermissible under Islamic finance.
Muslim investors should avoid conventional MTF structures and seek Shariah-compliant alternatives such as profit-sharing models (like Mudarabah) or Islamic trading accounts that do not involve interest. Staying informed and adhering to Shariah investing guidelines is essential to ensure financial gains are aligned with Islamic values.
