What is pledging and how does it work?
A lot of users have Stocks & ETFs in their holdings, but will have limited cash margins, due to which they may lose trade opportunities. In such circumstances, they can pledge your shares/ETFs for collateral margins, which you will receive after a % deduction called a haircut.
The margin received from pledging i.e. collateral margin can be used for trading Equity Intraday, futures & options writing. The collateral margin will be adjusted for the price variations in the security end of the day, every trading day, which can be checked on Console under Portfolio> Holdings.
The collateral amount received will be included in total margin available and shown separately under the collateral heading in Funds tab on Kite.
Exchanges stipulate that for overnight F&O positions, 50% of the margin needs to compulsorily come in cash and the remaining 50% can be in terms of collateral margin.
If you don’t have enough cash, your account will be in debit balance and there will be a delayed payment (interest) charge, a charge of 0.05% per day applicable to the debit amount. Read more about the delayed payment (interest) charges here.
So, if you take positions that require a margin of Rs 1 lakh, you will need at least Rs 50,000 in cash irrespective of how much collateral margin you have. Assuming you don’t have this Rs 50,000, whatever you are short by will be the debit balance for the day, and delayed payment (interest) charges will be applicable for that amount.
Please note the collateral varies based on the price of the security.
The cost of pledging at Zerodha is Rs 60 + GST per pledge request. There is no cost for un-pledging.
Click here for the list of shares that can be pledged along with the Haircut %. The collateral margin can change from time to time in accordance with our RMS policy.
Click here to know more about pledging.
Also, check out this post on TradingQ&A to know more.