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Why is my account in debit after placing a stop-loss order for my position?

The reason for debit in the account after placing the SL could be because of a hedged position. Hedging is a simple workaround to protect your trading positions from making a loss in the event of any adverse market movements. Read more on hedging here .

Do remember that you get a margin benefit for your hedged positions. This means that the funds blocked for your trades for hedged positions will be lesser.

Let’s say you have two open positions which are hedged against each other.

  1. You place a Stop-Loss order for one of the positions.
  2. When you place a stop-loss order for either of the positions, the position is no longer hedged. It is considered as two open positions instead.
  3. The margin immediately increases for the two open positions.
  4. If you don’t have sufficient funds in your account to cover the margin for a naked position, you will receive an SMS and an email notifying you about the margin shortfall (shortage of funds).
  5. You can now add funds to your account to avoid the position being squared off (closing/exiting an existing position is called “square off”).
  6. Alternatively, you can avoid placing a stop-loss order and track the hedged position yourself, and exit when necessary.
  7. You can place a GTT order instead of a stop-loss order to avoid losing margin benefit on Hedged positions. No other broker in India is providing this GTT feature.

Here is an example with numbers that may help you understand this better:

  1. Suppose you have a Nifty long position which you have hedged with a short call position.
  2. After taking these positions, the funds blocked in your trading account will be Rs.1,62,000 (because of the hedging margin benefit).
  3. Without the hedge, the complete margin for both these positions would be Rs. 2,94,315 (Rs.1,63,433 for Nifty Futures and Rs.1,30,882.20 for Nifty May CE).
  4. If you place a Stop loss order for Nifty May 15000 CE, the hedging benefit is lost.
  5. The complete margin of Rs. 294315 will now be blocked in your trading account.
  6. If there are not enough funds available in your account, you will receive an SMS/Email for the margin call.
  7. If you are placing a GTT order instead of a Stop loss order, the funds blocked will still be Rs. 1,62,000 as you won’t be losing the margin benefit. Click here to know more about how you can use the GTT feature.