Your account shows a debit after placing a stop-loss order because the order eliminates hedge benefits from your positions. Hedging is a strategy that safeguards trading positions from potential losses during unfavourable market movements.
How hedging affects margins
Exchanges provide margin benefits for hedged positions, which reduces the funds required for trading. When you have two positions hedged against each other, you pay lower combined margins.
Placing a stop-loss order for one of the hedged positions eliminates the hedge, treating both positions as separate open positions. This immediately increases the margin requirement for both positions.
What happens when margins increase
If your account lacks sufficient funds to cover the margin for unhedged positions:
- Zerodha sends SMS and email notifications about margin shortfall
- Your positions may face automatic square off (closing/exiting)
- Adding funds to your account prevents automatic square off
You can use GTT (Good Till Triggered) orders instead of stop-loss orders to retain margin benefits on hedged positions.
Example scenario
- If a long Nifty position is hedged with a short call position, ₹1,62,000 will be blocked in the trading account, considering the hedging margin benefit.
- Placing a Stop Loss order for Nifty May 15000 CE removes the hedge and results in the loss of the margin benefit. As a result, the complete margin of ₹2,94,315 will be blocked in the trading account.
- Insufficient funds in the account will trigger SMS and email notifications for a margin call.
- Using a GTT order instead of a stop-loss order maintains the blocked funds at ₹1,62,000, retaining the margin benefit