Margin Call and Forced Liquidation in MTF: How to Avoid Your Broker Selling Your Stocks
What Triggers a Margin Call in MTF?
When you use MTF, your purchased shares are pledged to the broker. The broker lends money based on the Loan-to-Value (LTV) ratio. If your share prices fall, the value of the collateral falls — but the loan amount stays the same. When the collateral value drops below the required maintenance margin (typically 80% LTV), the broker issues a margin call.
The LTV Calculation
| Scenario | Portfolio Value | Loan Amount | Current LTV | Status |
|---|---|---|---|---|
| Entry | ₹1,00,000 | ₹50,000 | 50% | Safe (limit is 50%) |
| 10% fall | ₹90,000 | ₹50,000 | 55.6% | Watch zone |
| 20% fall | ₹80,000 | ₹50,000 | 62.5% | Approaching limit |
| 30% fall | ₹70,000 | ₹50,000 | 71.4% | Margin call likely |
| 40% fall | ₹60,000 | ₹50,000 | 83.3% | MARGIN CALL issued |
“Start investing with confidence! Explore
0 demat account
and grow your wealth.”
What Happens After a Margin Call?
- Broker sends margin call notice via SMS/email
- You have a cure period (typically T+2 to T+5 days depending on broker)
- During cure period: either add fresh funds OR reduce position by selling some shares
- If not cured by deadline: broker force-sells sufficient shares to restore LTV
- Forced selling happens at market price — often at worst possible time (during market downturn)
How to Avoid Margin Calls: Practical Rules
- Maintain buffer: Keep actual LTV at 35-40% instead of the maximum 50% — gives 20-30% market fall buffer
- Use MTF only on highly liquid, large-cap stocks that recover faster
- Set your own stop-loss before broker’s forced liquidation level
- Keep cash reserves of 15-20% of MTF portfolio size for top-up during corrections
- Avoid MTF during major events: budget, elections, RBI policy, global risk events
Lemonn MTF Safety Features
Lemonn’s MTF platform sends automated alerts when your portfolio approaches 60% LTV — giving you early warning before a formal margin call. You can monitor your live LTV in the MTF portfolio dashboard and add funds via UPI instantly. Setting up auto-top-up from a linked savings account can prevent forced liquidation during brief market dips.
Disclaimer
The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. Lemonn (Formerly known as NU Investors Technologies Pvt. Ltd) do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
Related Posts
Download Lemonn
Download my app for share market trading, ipo investment, trading account, and all your investment needs.
