Why is the collateral margin reduced when the holdings are sold?

If a client has pledged certain quantities and placed a sell order for free quantities (unpledged quantities) of the same security, the collateral margins in the Zerodha account will be reduced. This is because the pledged quantities are considered for selling first, even if the quantities are meant to be sold from the free holdings. However, the quantities will be debited from the free holdings at the end of the day, and the collateral margins and pledged quantities will be restored the next day.

Example Scenario

1. A client has 200 shares of Reliance, out of which 120 are pledged for collateral margin.
2. The client sells 80 shares of Reliance from the free holdings.
3. The collateral margin will reduce to the extent of 80 shares, as the pledged quantities are considered first when the stocks are sold.
4. Zerodha will debit 80 shares from the free holdings instead of the pledged holdings during the end-of-the-day process.
5. The collateral margin in the client’s account is restored the next day, and the client won’t need to place the pledge request again.