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Why was the position squared off after the pledged holdings were sold?

If the client is selling the quantities of a stock that is pledged for collateral margin, the collateral margin reduces to the extent of the shares sold. If the clients do not have additional funds in the Zerodha account to maintain the minimum required margin, the positions will be squared off.

Example Scenario

  1. A client has 1 lakh worth of TCS shares pledged and received a collateral margin of ₹87000 after the haircut of 13%
  2. The client took a position using the collateral margin with no cash balance in the Zerodha account.
  3. Now, the client sells all the shares of TCS and gets ₹80000 (80% of 1 lakh) credit from the sale of those shares. There will be a shortfall of ₹7000 which will reflect as a negative margin on the Funds page. To learn more, see Why is full credit not being received against the sell value of the holdings?
  4. As the client has no cash balance, such a position will be squared off by Zerodha if the funds are not added to the Zerodha account.