Suppose I buy 1 lot of NIFTY futures – I have pledged Liquid Bees/Liquid Mutual fund and I have extra Cash for M2M.
If I notice that cash to cover for MTM losses has become 0, then can I just sell some stocks in my demat account? The cash accrued out of that sale, will it immediately cover the MTM losses for that day? (even though it will take 2 days for settlement of the stock sale)?
Your positions will not be squared off by your broker if you sell your holdings to fund the MTM losses. However, since the amount is not yet in your account, the exchange will levy margin penalty on the shortfall of funds until they are settled on T+2. So, ideally, you should transfer funds or keep unencumbered/free cash in your account.
I just wanted to clarify that I have more than sufficient margins (span + exposure) even though the cash is 0. Still will i incur margin penalty? If so at what rate?
Let’s say you have margins worth 1 lac and the required margin is 80k. Now, you incur a loss of 15k and the required margin remains 80k. In this case, your reportable margin becomes 85k which is adequate to cover for the requirement and you will not be charged an exchange penalty. However, since this loss of 15k has been funded by your broker in cash, the broker can levy an interest charge on your account. At Zerodha, it is 0.05% per day.
Thanks for replying so quickly. If instead of selling a stock, I sold LIQUIDBEES ETF, then will the money come to my account instantly and replenish the cash that had become 0?
Like stocks, the settlement of Liquidbees also takes place in the T+2 cycle. It would be ideal to maintain a part of your funds in cash for scenarios where you have M2M losses.