Zerodha Co-Founder Nithin Kamath on Wednesday warned about rising risks linked to margin trading facility (MTF). In a post on X, he said that while MTF has grown rapidly across the industry, whereas brokers' risk models have not kept pace.
“MTF (margin funding) has grown 5 times in four years to Rs 110k+ crores, especially after F&O margins and STT increases. But there's something nobody's talking about: there is no real risk model in play for brokers (sic),” Kamath said.
He cautioned that high leverage and weak safeguards could worsen losses during a sharp market correction. To clarify, MTF is a product that lets investors buy shares by paying only a portion of the cost. The broker finances the rest and charges interest on this borrowed amount.
“Regulations allow up to 5 times leverage (20% margin) on many stocks. Competition forces every broker to offer maximum permissible leverage. If you don't, you lose business…,” Kamath explained MTF's downside, adding that there is no strong risk model to manage losses.
MTF (margin funding) has grown ~5X in 4 years to ₹110k+ crores, especially after F&O margins and STT increases. But there's something nobody's talking about: there is no real risk model in play for brokers. ????
— Nithin Kamath (@Nithin0dha) January 21, 2026
Regulations allow up to 5X leverage (20% margin) on many stocks.…
Kamath explained that unlike F&O, MTF has several risk multipliers. “Clients hold positions for months vs days (in F&O). 1,300 stocks (many illiquid) allowed vs only the top 200 in F&O. All buy positions vs two-way flow in F&O (sic),” he noted, adding that these factors make it much harder to manage the risks in MTF.
When the market falls, liquidity can disappear, which may lead to forced selling and sharp price declines, the CEO explained, adding that the current rules likely protect “system from broker failures, not brokers from client defaults.”
“With MTF growing times across the industry and everyone at maximum leverage, the next major correction could trigger synchronised liquidations. We haven't seen a 2008, 2015, or COVID-type event since MTF scaled up. When we do, it will cause mayhem—not because any broker fails, but because forced selling into illiquid markets will cascade,” he said.
In the post, Kamath reiterated that brokers lack proper risk models. “My gut says a lot of what's being earned as interest income, and possibly some capital, of brokers, will all be given back when the market does a quick move down,” he concluded in his post.
ALSO READ: Zerodha To Allow Equity F&O Margin On Expiry To Be Used For Commodity Trading
Watch LIVE TV, Get Stock Market Updates, Top Business, IPO and Latest News on NDTV Profit.
