When you sell stocks from holdings using CNC (Delivery) and then buy the same stocks using MTF, Zerodha treats this as an intraday trade. Since you're buying the same stocks using MTF, the system cancels the proceeds from your CNC sale, leaving your holdings unchanged while increasing the risk of a negative balance.
To prevent this risk, Zerodha doesn't allow you to buy stocks using MTF when you have an open CNC (Delivery) sell position for the same stock.
How this creates a margin shortfall
Here's an example that shows why this restriction exists:
Initial scenario
- Your account balance is ₹0
- You sell 100 shares of Adani from holdings using CNC (Delivery) at ₹2,000 each, creating a CNC sell value of ₹2,00,000
- You can use this amount for other transactions
- You then buy 400 shares of Adani using MTF at ₹2,000 each, making your MTF holding value ₹8,00,000
End-of-day settlement
By the end of the day, Zerodha adjusts your CNC (Delivery) sell of 100 shares against your MTF buy of 100 shares, making it settle intraday. The remaining 300 shares from your MTF buy (worth ₹6,00,000) don't have the required margin of ₹1,20,000 (assuming 20% initial margin is required for MTF).
This creates a margin shortfall, which is why Zerodha restricts such trades.
How to resolve this error
Close your open CNC sell position before placing an MTF buy order for the same stock.