What changes due to the new upfront margin requirements?
Upfront margins are required for all trades starting from September 1, 2020, as per this FAQ (PDF) from exchanges and this circular from SEBI (PDF). This has the following effects:
- Sale proceeds from holdings can be used to take new positions -
Clients can use 80% of sale proceeds from their stock holdings as soon as they exit them to enter new positions — other stocks or F&O positions.
As per the new peak margin regime, there is now a cap on maximum intraday leverages and only 80% of credit from selling the holdings will be available for new trades. The entire credit will be available from T+1 day. To learn more see zerodha.com/z-connect/zerodha/bulletin-latest-at-zerodha/peak-margin-intraday-leverages-2nd-order-effects-dec-1st-2020
a) If the holdings are sold and bought back after utilising the sale proceeds in other trades, a margin penalty as per the new peak margin rules may be levied. To learn more, see How is the margin penalty calculated? and visit zerodha.com/z-connect/zerodha/bulletin-latest-at-zerodha/peak-margin-intraday-leverages-2nd-order-effects-dec-1st-2020
b) In order to give the benefit of being able to use the holdings sale credit immediately to the clients, Zerodha is resorting to debiting shares on T day and doing an Early payin to the Exchange. Till the time that the stocks are collected by the Clearing Corporation (T+1), the shares will be in the Early payin account on which certain corporate action benefit are not receivable. Clients are advised to not to sell the shares and continue to hold them in their account till the record date if they want to be eligible for any corporate actions, like buyback etc.
2. Using sale proceeds from T1 holdings -
Similar to the stock holding, 80% of the sell value of the proceeds from selling T1 holdings (stocks bought the previous day and yet to be credited to the demat) can be used to buy new stocks for delivery. However, only 60% of this selling value can be used towards F&O. To learn more, see tradingqna.com/t/update-4th-aug-2020-margins-for-trading-stocks-intraday-leverages/86511
3. Intraday profits can be used for new positions only after it is settled -
The Kite balance will not include any intraday profits until they are settled by the exchange. The settlement of funds happens on the next trading day. However, clients can continue to see the funds from intraday profits in the closing balance on the funds statement.
- Shares worth ₹2,00,000 are bought on Monday.
- These shares are sold on the same day for ₹ 2,25,000 with a profit of ₹ 25,000 (ignoring all the charges)
- ₹2,00,000 will be available immediately for other transactions. However, the profit of ₹ 25,000 will be available only on Tuesday for withdrawal or to be used for other trades based on the T+1 settlement cycle.
It will take an additional day for the settlement process if there’s a settlement holiday. See What is a settlement holiday and its impact?, Market holiday calendar 2022.
- Option sell credit can be used only to buy options on the same trading day -
When the long/buy option position is exited, or a new write/short option position is bought, the proceeds or credit of option premium can be used for only new long/buy option trades on the same trading day and only within the same segment (proceeds from equity options can’t be used for currency or vice versa). These proceeds or option credit can be used for all other types of trades only from the next trading day.
The account balance on Console may not match with Kite balance. As the Kite balance will not include unrealized intraday profits until they are settled, while Console will show balance including intraday profits.
Click here to watch the video in Hindi for an explanation of the points above.
Any follow-on questions can be posted in this Trading Q&A thread.