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What is pledging and how does it work?

A lot of users have stocks, ETFs, and mutual funds in their holdings, but will have limited cash margins, due to which they may lose trade opportunities. In such circumstances, they can pledge their 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 (equity and currency F&O). The collateral margin will be adjusted for the price variations in the security at the end of each trading day, which can be checked on Console under Portfolio> Holdings. Margins from pledging shares cannot be used for trading until the negative balance is cleared.

The collateral amount received will be calculated from the previous closing price of the securities after haircut and included to the total margin available on Kite. The collateral margin received is shown separately in Funds tab on Kite, under the collateral heading.

Exchanges stipulate that for overnight F&O positions, 50% of the margin needs to compulsorily come in cash or cash equivalent collateral,  and the remaining 50% can be in terms of non-cash collateral margin .

If you don’t have sufficient cash margin and the shortfall is funded by non-cash collateral, there will be a delayed payment charge of 0.035% per day or 12.775% p.a on the shortfall in the cash margin requirement. 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 30 + GST per pledge request. There is no cost for un-pledging. Zerodha processes pledge requests at 2:00 PM and 5:00 PM only on days when the equity market is open.

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.