When you place a market order, the system executes it at the best available price after validation. However, differences between validation and execution prices can occur, potentially leading to a negative account balance.
How price differences create negative balances
Here's an example of how this happens:
You place a market order for 1,000 quantities of a Bank Nifty CE contract requiring a margin of ₹96,150. The system validates this order based on the previous close price of ₹96.15. However, if the contract opens at a different price, say ₹196.15, the execution leads to a debit of ₹1,96,150 in your account instead of the expected ₹96,150.
When negative balances occur
Cash market or F&O orders placed at market opening or during market hours are validated based on available bid-ask prices, but execution can take place at uncontrollable prices. Such circumstances can result in a negative fund balance in your account.
Consequences of negative balances
When your account has a negative balance, Zerodha may square off positions without prior notice. Additionally, if your account is in negative balance, you'll be charged a brokerage of ₹40 per executed F&O order instead of the standard ₹20.