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 + 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:
Position losses reach 80%
Zerodha automatically squares off your position when losses hit 80% of the funded amount, even if you have sufficient balance in your account.
For example, if you buy a stock worth ₹100 where you fund ₹40 and Zerodha funds the remaining ₹60 (on which you pay daily interest), your position gets squared off if the stock price falls by more than 80% of ₹60.
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). This ensures the position is closed and prevents further losses.
Your account goes into debit
Zerodha sends you notifications at 8 AM before beginning the square-off process.
Your positions get squared off if losses exceed 20% of your funded amount. For example, if you fund ₹50,000 and your losses exceed ₹10,000, Zerodha squares off positions proportionately to recover the debit balance.
Stock category changes
When a stock you hold under MTF gets reclassified and removed from Group 1 securities, Zerodha notifies you and squares off the position within 7 days.
You can either sell the stock or convert the position to CNC within 7 days. If you don't take action, Zerodha squares off your position on the 8th day.
For example, if a stock moves out of Group 1 on 1st December, Zerodha squares off your position by 8th December if you don't close or convert it.
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 Zerodha needs to square off multiple positions, it follows this specific 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:
- Both F&O and MTF positions in loss: Zerodha squares off the F&O position first
- MTF in loss and F&O in profit: Zerodha squares off the MTF position first
- MTF in profit and F&O in loss: Zerodha squares off the F&O position first
- Both F&O and MTF in profit: Zerodha squares off the F&O position first
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 positions. Instead, Zerodha utilises your collateral margin and charges interest on this utilised amount.
For example, if your account has collateral margin worth ₹10,000 and your debit balance is ₹8,000, Zerodha doesn't square off positions. You pay delayed payment charges on the over-utilisation of collateral margin (₹8,000 in this case).
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.