Collateral Margin and Cash

[_satya]

I have pledged liquid funds and got a margin of 10 lacs against it. I had cash of 40k in my account.

I initiated a hedged trade on 5th and till yesterday my cash balance remained 40k. Today due to the drastic fall in the market, the margin requirement increased.

I now notice that 6k has been taken from my cash balance.

Now i was to understand that margin obtained from pledging liquid funds is treated as cash equivalent by zerodha.

That being the case why arent they blocking more collateral margin and instead taking out cash?

Thanks

[Stonecold]

@ShubhS9 can answer this.

[VikasK]

Have you put all money in single liquid fund. Which liquid fund… Me too looking to park funds to liquid funds but evaluating gsecs right now…

[ShubhS9]

The losses are marked to market and will be debited from available cash. The collateral margin, even if it’s cash equivalent, cannot be used towards this.

[_satya]

@ShubhS9

The losses are marked to market and will be debited from available cash. The collateral margin, even if it’s cash equivalent, cannot be used towards this.

So whenever P&L shows -ve figure, that amount is blocked from my cash?

I had assumed that the concept of daily M2M settlement in cash was only for Futures and not options?

Please clarify

[_satya]

@VikasK

Have you put all money in single liquid fund. Which liquid fund… Me too looking to park funds to liquid funds but evaluating gsecs right now…

Ive invested in HDFC liquid and ICICI Pru liquid funds. You can invest in any of them. They are all at par

[ShubhS9]

@_satya

I had assumed that the concept of daily M2M settlement in cash was only for Futures and not options?

There is no concept of daily settlement like Futures in Options. But for Short Option position, losses are actively debited from your funds.

[Vij]

@ShubhS9 Could you offer bit more clarity on what exactly you mean by “actively debited”? If the short positions later turn favorable but still ON, will the debit be reversed?

[ShubhS9]

@Vij

If the short positions later turn favorable but still ON, will the debit be reversed?

Yes, it’ll be reversed.

[Vij]

Thanks @ShubhS9

@ShubhS9

But for Short Option position, losses are actively debited from your funds.

Could you also let me know, when you say “actively debited”, is it according to a threshold? Is there a criteria?

[ShubhS9]

@Vij

Could you also let me know, when you say “actively debited”, is it according to a threshold? Is there a criteria?

Short Options for example carry risk of unlimited loss. So, if your option position is making loss, this will be debited from your funds.

There is a thread on topic similar to this, you can give it a read for better understanding: How is the margin updated?

[Vij]

@ShubhS9

So, if your option position is making loss, this will be debited from your funds.

Need one more clarification. This debit(while the trade is still active) will be from collateral(equity, cash) or actual cash?

[_satya]

@Vij

Need one more clarification. This debit(while the trade is still active) will be from collateral(equity, cash) or actual cash.

Debit is from actual cash, which happened in my case. I dont see the logic in this though. If collateral via liquid funds is treated as cash equivalent i really dont see the logic behind blocking cash for unrealised loss when ample collateral margin is available