What is pledging, and how does it work?

Many users may have limited cash margins despite having stocks, ETFs, and mutual funds in their holdings, leading to missed trading opportunities. To avoid this, they can pledge their shares, mutual funds, and government securities such as T-bills and SGBs as collateral margins, after a % deduction called a haircut. These margins can be used for equity intraday trading, futures & options writing (equity and currency F&O), subject to being adjusted for price variations at the end of each trading day. However, it cannot be used for options buying. Commodity futures and options (MCX/NCO) cannot be traded using collateral margins. To learn more about pledging, see How to pledge shares to get collateral margin?

However, collateral margins cannot be used until negative balances are cleared. The collateral amount is calculated from the previous closing price of the securities after a haircut, and it is added to the total margin available on Kite. The collateral margin received is shown separately in the Funds tab on Kite, under the collateral heading. To learn more, see What does Collateral(Equity) in the ‘funds’ mean?

The exchanges require that 50% of the margin for F&O positions must be in cash or cash equivalent collateral, while the remaining 50% can be in non-cash collateral margin. In case there is a shortfall in the cash margin requirement for overnight positions, and it is funded by non-cash collateral, a delayed payment charge of 0.035% per day or 12.775% p.a is applicable on the shortfall in the cash margin requirement. To learn more about delayed payment charges, see I see a deduction "Delayed payment charges" on my ledger. Why is this?

Example scenario

A minimum of ₹50,000 in cash is required, regardless of how much collateral margin one has, for positions that require a margin of ₹1 lakh. If the cash margin shortfall is not met, the shortfall amount will be the debit balance for the day, and delayed payment charges will be applicable on that amount.

The list of approved instruments that can be pledged for margins and the applicable haircut % can be found by visiting zerodha.com/approved-securities.

Did you know?

• Pledged holdings can be sold instantly without placing an unpledge request in Zerodha. To learn more, visit zerodha.com/z-connect/tradezerodha/kite/instantly-sell-pledged-stocks-on-kite.
• Treasury Bills (T-Bills) with maturities of 364 and 182 days can now be pledged for collateral margin. T-Bills with maturities of 91 days will soon be available.