How does pledging of FD for F&O margin work

Ok so to make it clear.
When we pledge stocks we get margin after haircut but as per exchange rules we can not use that whole margin for example even though we have 2 lac worth of margin from stock pledging …and trade we are going to take is worth 1 lac …so even though we have more than 1 lack worth of margin …as per rules we need to have 50k in cash …otherwise u will provide margin from your own funds and that is about 18% interest a year …but margin we received from nsccl (2 lac in this example) will not have any interest correct?

Yes, correct.

As Nithin’s said, from your easiest login, you would only be able to carry out transactions in favor of your broker or in favor of any third party (like banks, nbfc if you want to pledge your holdings and take a loan). When you want to raise margins in the F&O segment, you’ve to move the stocks to your brokers account and the broker then marks a pledge to the Clearing Corporation against which you get margins to trade after applying the appropriate haircuts.

easiest also allows transactions of two types - Trusted account transactions and Account of Choice transactions.

  • Trusted account - Transfers : permits transfer of securities from the client account to any 4 CDSL demat accounts of the client’s choice , which have been pre-notified by the client. This includes broker accounts too.
  • Account of choice - Transfers : Permits transfer of securities from client account to any other demat accounts. All the transactions are to be authenticated by means of a digital signature.

Suppose I have pledged shares by which after haircut I have a margin of 2lacs.
I also have 2 lacs cash in my account.

Now if I a take long position for 2 lacs. Then how will it distributed from the available margins. Will it be 1lac cash and 1lac collateral or all 2lacs cash?

If I take short position of 2lacs. Will the distribution of margin be different from a long position?

Thanks @VenuMadhav for taking time to resond.

I still have confusion.

  1. U said easiest is only used for trusted account transfer and than could include any broker. By transfer I believe you referring to off market sale, but there is another option under easiest… it says pledge …so if we choose to that option and create pledge it still goes to trusted account of our choice .(.in my case I have only one account which is broker’s account as trusted so it can not go anywhere else_)

  2. I understand once I move to broker’s account than it broker is suppose to pledge to clearing crop but how do I know whether broker actually pledge that with NSCCL or not? he may just keep it in his account and still provide me margin …or he can pledge to NBFC instead of NSCCL …how would I know…

  3. To my understanding if broker pledge it with NSCCL than I am safe …otherwise broker can potentially misuse it. correct me if I am wrong.

1 lakh is considered from the collateral margin and remaining 1 lakh from the Cash. Collateral margin can be used to trade in Futures (Long & Short) & Options (Short only).

Thank you for replying quickly despite it being a sunday and working from home due to the current situation.

@siva @Bhuvan

Google it.

easiest allows both trusted account & account of choice transfers

You can pledge to a broker if you have an arrangement with the broker that he’s going to give you margins against such pleldge, at Zerodha we don’t. We pledge all securities to Clearing Corporation after moving them from the client’s demat account to our collateral account (collateral account is permitted by the Exchanges to be opened for this specific purpose)

Choose the right broker

After the Karvy episode, SEBI has barred brokers from pledging client securities with NBFCs.

Thanks again…

  1. Yeah I know easiest can be used to transfer to both trusted account as well as account of choice. But I only have set up for trusted account. Only trusted account I have is my broker. In that context I have two options …either use pledge option or use off market sale. Now question is if I use pledge option …does that mean shares are actually transferred to broker or it still stays in my demat just marked as pledged ? I know if I choose off market sale …it actually transfer to his collateral account. (I have done that…I have not pledged)

2.Good thing that now no broker can pledge to NBFC …but only to NSCClL …but when a broker for example Zerodha pledges to NSCCL and get a loan for a client…why there is no interest …Nithin said when you pledge to NSCCL there is no interest …

Shares sit in your account with lien marked to pledgee

It’s not a loan, its just margin. You can’t withdraw it, you can use it to take derivative positions.

I’ve explained margins vs cash here.

1 Like

Hi Venu Can u Advise How to use FDR as collateral and also list of banks which zerodha approves for FDR. Nse India clearly states FDR can be used as collateral margin for f&o trading and also have provided list of banks and the letter formats . How Do I get this sorted .
Suppose I want to put 10Lakh in FDR in one of nse approved banks how do i proceed further.
I dont have shares to pledge

Manoj, we do not currently offer pledging of FD, you can pledge Stocks, ETF’s, Mutual Fund’s, G-Sec’s and SGB’s, you can check the approved list of securities here.

@nithin @ShubhS9
Does 50% margin rule apply to cash equivalent collateral as well?

  1. Say, I have pledged 5 lac worth of Liquid bees(cash equivalent), now can I take the position on F&O for 5 Lac or it is limited to only 2.5 lac?
  2. In the above case if there is a MTM loss of 25k will that be adjusted by selling 25k worth of liquid bees? in order to avoid this can I keep only cash enough for only mtm losses?
  3. If I take the position for 5 lac, will I be charged interest for 2.5 lac for exceeding the limit? how much(%) is the interest charges?

You can use 100% cash equivalent margin for overnight F&O positions. As this margin received is cash equivalent, there is no 50% restriction.

If you are in loss, the collateral margin you have received cannot be used to settle this. Not having cash in your account will result in your account going in debit balance (on which interest will be charged at 0.05% per day). Your pledged securitues will be squared-off to the extent of debit balance if you fail to add the funds.

So, it’ll be idea to keep some cash balance in your account.

You can use 100% of the collateral margin received from pledging cash equivalent securitues, there will be no interest.

If it is collateral margin received from pledging non-cash equivalent securitues, then the interest is 0.05% per day on the excessive collateral margin you’ll be using.

Investors traders are insured upto Rs.25 lakhs . (as per the Investor Protection Fund of the SEBI) . This includes the money in the trading account, the stocks, shares, securities in the demat holding (including the pledged and non pledged both) .

BUT. my question is :

There are few brokers who provide the margin against the FD pledge lien mortgage collateral .
The question is :
Is the FD also insured , as per the investor protection fund ?

I doubt and asked this question because : for the FD , the broker acts as a NBFC .

So , will my FD be also covered by the Investor protection fund of Rs.25 lakhs , in case of any default by the broker or by the bank itself ?

Post script : the biggest advantage of FD as pledge is : it offers 100% value with zero haircut


@siva @ShubhS9 @Bhuvan i have sbi banking and financial services fund i cannot pledge , in your list regular plan is available , then why direct plan is not available to pledge , what is the logic on this one i cannot understand

1 Like

The list of securities which can be pledged is approved by the Clearing Corporation. Currently, the Direct Plan for this mutual fund isn’t approved, if and when it is approved by the CC, you’ll be able to pledge.

1 Like

@nithin Really clearing corporation are not doig his job in a professional way i think, in the same fund house regular plan they allowed to pledge , direct plan they are not allowing , what kind of logic was seen by Clearing corporation i dont know , even most of the top performing fund they are not allowed to plegde

let them pledge all equity and debt mutual fund and the respective hair cut - then why the drama some fund dividend fund are allowed but growth funds are not allowed @nithin please take this matter to clearing corporation

if you have the list of colleterial files from clearing corporation please share with me


1 Like