When you execute a sell order for stocks or ETFs, your free holdings (unpledged quantities) are sold first, followed by your pledged holdings. If your executed sell quantity exceeds your free holdings, the remaining quantities are sold from your pledged holdings. As a result, your collateral margin reduces proportionately based on the pledged shares sold. You must ensure sufficient margin is available in your account, as this reduction in collateral margin may cause a margin shortfall and trigger an auto square-off for your other open positions.
Example scenario
- You hold 200 shares of Reliance in your demat account, of which 120 are pledged for collateral margin, and 80 are free holdings.
- You execute a sell order for 100 shares of Reliance.
- The 80 free shares are sold first.
- To cover the remaining quantity, 20 shares are sold from your pledged holdings.
- Your collateral margin immediately reduces to the extent of the 20 pledged shares sold.