With shares of around 2L and if I pledge I can get around 1.5L as margin not sure about other charges does it makes sense to trade FNO or are there extra charges or some limitations of what you can do and can’t do with that margin?
What if shares value fall and it’s worth is only 1L after 1 week so do I have to bring in more capital for existing position, what are the penalties for inadequate funds and what are the conditions that will liquidate the shares held by broker?
Limitations yes, you can use Margin recieved from pledging only for Intraday Equity, trading Futures and Selling Options. Buying Options requires cash. Also when you take Overnight position in F&O 50% margin should compulsory come in cash or equivalent and other 50% from collateral. Failing to do so will result in negative balance and you will be charged interest of 0.05%. There are also margin shortfall penalties charged by exchange, You can learn more here.
Yes, when your margin reduces due to fall in stocks price or change in haircut, you will have to bring in more funds to maintain your position. Penalties as explained above.
@MohammedFaisal can you.
We will only liquidate the shares if your account goes into a debit balance due to an MTM loss.
For example, you have a futures position that was is funded by collateral(no free cash). The trade goes against you and it results in an MTM loss. If cash isnt added to make good for the loss, shares will be sold to recover the debit balance.
So if margin is lets say 50 and MTM loss is 10 I would have to bring 10 more to avoid liquidation of shares? Is it liquidated very next day or there is some period gap?
if I pay the interest to the broker because the broker had to arrange the margin in the exchange then why would I pay the penalty to the exchange ?
OR
if I pay the penalty to the exchange because the margin could not be arranged then why would I pay the interest to the broker ?
can u pls explain ?
It’s income for the exchanges,they are here for business. Also for maintaining discipline among clients and brokers they charge penalty.
can u pls answer the other question also
Brokers are no social worker who will give you interest free money
sir , that is what I m asking : if broker is funding me my margin shortfall and charging interest for it too ; then why will I have to pay the penalty to the exchange because the broker already funded it ! correct ?
OR
if the exchange is already charged the penalty to me then why would I require the fund from the broker and pay interest on that ?
do u understand , what I mean ?
Broker only charges when your account balance goes negative.
Exchange charges on margin shortfall which can arise if client takes overnight position with freshly released cash from selling of stocks or squaring-off long Options positions, in this scenario broker doesn’t charge you only exchange charges you.
I think now its clear that Zerodha is doing early payin so 80% of proceeds from freshly sold shares can be used to short option or futures without margin penalty …correct me if am wrong.