How does pledging of FD for F&O margin work

If we pledge an asset as collateral (say Fixed deposit or Niftybees or shares), we get margin.

Next steps is what I am unsure of

If I have say pledged assets worth 1 lakh and so now I have margin of 1 lakh available with me

If I short 4 lots of nifty which requires me to give total margin of say 90,000. Will the available margin from my pledge be enough or is there any requirement for cash component to be deposited also.

What happens if I book a loss of say 10,000 on the above short sale?

1 Like

Giving fixed deposit as a collateral is something most brokerages don't accept. When you pledge FD's, exchanges don't accept FD which is in the name of the client. You will have to book the FD in the name of the broker, and the broker in turn can submit it to the exchanges. This is an operational nightmare, and hence most brokers don't support this. 

But you can very easily pledge anything that trades on the exchange like equity and ETF's like liquid/nifty bees. I can tell you how the processs works at Zerodha

  1. Send an email to support@zerodha.com asking to pledge the stocks, name and quantity. We will very soon have a functionality to do it directly from Q. 
  2. Once the pledge has been accepted, the next day you will see the additional margin after haircut in your trading account. Haircut can vary from 10 to 40% based on the stock. Assume the haircut on your 1lk of stocks is 20%. So next day you will have Rs 80,000 available in your trading account to trade F&O with (you are not allowed to take further delivery of equity/stocks with this money). 
  3. We used to initially ask some cash component, but today we don't. So assuming 20k is margin per lot, you can buy 4 lots of Nifty with 80k in your account. If there is a loss of 10k, we ask you to transfer it to the trading account before beginning of the next day. If you don't, the stocks pledged would be squared off to that extent. So it is always best to keep some cash as buffer for any MTM losses. 
  4. Unlike most brokerages, we don't take the risk when you pledge the stocks by keeping the stocks with us and charging you an interest for the margin. What we do is that the entire stock is pledged with NSCCL itself and you have to pay no interest on the money. Every stock irrespective of how much quantity, the  pledge/unpledge round trip cost is around Rs 60 in dp and other charges. 

Hope this helps 

Thanks this is what I was looking for.
So in short (pun unintended :D)
I get 80K as margin against the pledge of 1 lakh worth of shares and say i keep 20K as buffer for any M2M losses.
This clears my doubts thanks

Hi Nithin, any idea when the feature to do the pledging directly from Q would be added ? It would help in streamlining the process.

Hi Nithin,
Is this enabled in Q now ??

@nithin sir, any updates about it ? Can I pledge liquid mutual fund, bought from coin as collateral?

Use Fixed Deposit/FD as COLLATERAL for Trading

https://youtu.be/psQR4EIAQ1Y

Nicely explained in the video. It appears, NSE has simplified the process by having 3rd party FDR. I believe, zerodha can introduce this atleast for say (10 lac) and above…

Thanks