You can use Zerodha's Margin Trading Facility (MTF) to trade with borrowed funds. However, Zerodha may square off your MTF positions under specific conditions to manage risks. When this happens, you pay an auto square-off charge of ₹50 + 18% GST for each position that gets squared off.
When Zerodha squares off your MTF positions
Zerodha will square off your MTF positions in these situations:
Your account goes into debit
Zerodha sends email and SMS notifications at 8:00 AM before starting the square-off process. You generally have until 11:00 AM to add the required funds. However, during periods of high market volatility, Zerodha reserves the right to square off positions at any time after 9:15 AM.
Positions may be squared off if your losses exceed 20% of your funded amount. For example, if your funded amount is ₹50,000 and your losses exceed ₹10,000, Zerodha may proportionately square off your positions to recover the debit balance.
Position losses reach 80%
Zerodha automatically squares off your position when your losses reach 80% of the amount funded by Zerodha, even if you have sufficient balance in your account.
For example, suppose you buy a stock worth ₹100 using MTF, where you pay ₹40 and Zerodha funds the remaining ₹60, on which you pay daily interest. If your loss reaches 80% of the ₹60 funded by Zerodha, which is ₹48, your position will be squared off automatically.
If losses exceed 90% of the Zerodha-funded amount and the position cannot be squared off in the market, Zerodha converts the position to CNC (Cash and Carry). If there is insufficient balance in your Zerodha account, the position will still be converted to CNC, and your account will go into debit for the required amount. Delayed payment charges will apply until the debit balance is cleared.
Stock category changes
If a stock you hold under MTF is reclassified and removed from Group 1 securities, Zerodha will notify you on the same day. You can sell the stock during market hours or convert it to CNC (Delivery) by 4 PM.
If you don't sell or convert by 4 PM, Zerodha will convert your MTF position to CNC on the same day. If there is insufficient balance in your Zerodha account, the position will still be converted to CNC, and your account will go into debit for the required amount. Delayed payment charges will apply until the debit balance is cleared.
Corporate actions
Zerodha squares off positions one day before the ex-date for specific corporate actions like mergers. This doesn't apply to bonuses, stock splits, dividends, and rights issues.
For example, if a stock's ex-date for a merger is 10th December, Zerodha squares off your position on 9th December. Zerodha may send you a notification before squaring off your position, at its discretion.
Priority order for squaring off positions
When multiple positions need to be squared off, positions with losses are generally closed first, based on the following priority order:
F&O positions with losses come first
Zerodha squares off Futures and Options (F&O) positions with losses first to avoid penalties or additional costs.
Combined F&O and MTF positions
If you hold both F&O and MTF positions, Zerodha follows this priority:
- Futures & Short Options (First): Squared off first to cover the peak margin shortfall.
- MTF Positions (Second): Squared off next if a shortfall remains.
- Long Options (Last): Squared off last if the shortfall is still not covered.
Depending on live market conditions and your account risk, Zerodha's RMS may change this order and choose to square off F&O, MTF, or both.
Using collateral margin
If you have sufficient collateral margin in your account and a debit balance due to MTF, Zerodha may not square off your MTF positions. Instead, the available collateral margin can be utilised, and interest or applicable delayed payment charges are levied on the utilised amount.
For example, if you have a collateral margin of ₹10,000 and an MTF debit balance of ₹8,000, Zerodha may use the available collateral instead of immediately squaring off your positions. You will be charged applicable delayed payment charges on the ₹8,000 utilised amount.
If your MTF positions are squared off and your account still remains in debit, Zerodha first sells pledged cash-equivalent collateral, such as Liquidcase, to recover the debit. Other pledged stock holdings are liquidated only if the debit remains after this.
Recovering F&O debits
If your account goes into debit from F&O-related obligations but you have no F&O positions left to square off, Zerodha squares off your MTF positions to recover the amount.