How is free cash available for delivery-based trading calculated during market hours if I trade Futures and Options and also have collateral margin?

Explain in all the available scenarios.

Let’s put down a few pointers before we start:

  1. The margin for trading F&O is blocked from Collateral margin(margin received from pledging shares) during trading hours.
  2. At the end of the day, the margin is split equally between free cash and margin.
    (If 50% of the money is unavailable in free cash, then your free cash goes into negative and the shortage in free cash is utilized from collateral itself).
  3. The premium received on option selling is added to free cash.
  4. Unrealized loss is taken collateral margin, realized loss and realized profit is netted from you free cash.
  5. Unrealized profit is not added to free cash.

You can take a delivery-based trade with whatever is the free cash in your account at any given point in time.

Let’s take examples for each of the above points and calculate the free cash in the account at different scenarios:

You have Free cash = Rs.1 lac and Collateral margin = Rs.5 lacs.

  1. On Day 1, you take a Normal future position which requires a margin of Rs.1 lac. During trading hours, the amount of 1 lac is blocked from collateral margin only.
    Now, Free cash = Rs.1 lac and Collateral margin = Rs.4 lacs.

  2. At the end of the trading day, this margin amount gets split 50-50 between free cash and collateral.
    Now, Free cash = Rs.50k and Collateral margin = Rs.4.5 lacs.

  3. Let’s assume you ended the first day with no profit/loss.
    Now on Day 2, you take an option short position which requires a margin of Rs.1 lakh for which you receive a premium of 20k. The entire margin of Rs.1 lac gets blocked from the Collateral margin and 20k gets added to free cash.
    Now, Free cash = Rs.70k and Collateral margin = Rs.3.5 lacs

  4. You also complete an intraday trade with a realized profit of Rs.5k. This gets added to free cash.
    Now, free cash = Rs.75k and Collateral margin = Rs.3.5 lacs

  5. Let’s assume your carried future position is at an unrealized loss of Rs.10k. This gets subtracted from collateral.
    Now, your free cash = Rs.75k and Collateral margin = Rs.3.4 lacs

To buy shares for delivery, you now have Rs.75k of free cash. Assume you buy stocks worth 50k.
Now, your free cash = Rs.25k and Collateral margin = Rs.3.4 lacs

At the end of Day 2, the margin for the day(which was completely blocked from collateral) is now split 50-50 between free cash and collateral.

So, for Day 3, Free cash = Rs. -25k and Collateral margin = Rs.3.9 lacs.

You’ll be charged an interest of 0.05%/day on this debit amount in the free cash until it’s cleared. You can continue to do margin trading with the money available in Collateral margin.

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So if 50% free cash is not available - what is the penalty ? and that penalty is from exchange or from Zerodha? and I believe until that negative balance is clear by adding more cash …there will be interest charged per day if yes how much interest?

Penalty is charged by exchange and charge varies from 0.5% to 1%, refer to this article for more.

The interest charged by Zerodha for negative balance is 0.05% per day.

I checked that article and it does not say anything about 50% cash is required …it only says about shortfall margin penalty. Can you please enlighten me?

Exchanges stipulate that for overnight F&O positions, 50% of the margin needs to compulsorily come in cash and the remaining 50% can be in terms of collateral margin.

It is mentioned in this article.

I know but its an article by a zerodha employee - it does not mean exchange want 50:50 ratio at client level …exchange want it at broker level …i.e. broker has to maintain that ratio with exchange. Zerodha says - oh exchange want it from client. (misinterpretation)

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Are you working for Zerodha ? did you even read your own message…read above again. It says I would not be able comment of other brokers polices …that means if it was required by exchange than every broker has to follow the rule and would be asking clients to maintain that 50:50 ratio.

Here is copy/paste from exchange website -
Effective deposits

All collateral deposits made by CMs are segregated into cash component and non-cash component.

For Additional Base Capital, cash component means cash, bank guarantee, fixed deposit receipts, T-bills and dated government securities. Non-cash component shall mean all other forms of collateral deposits like deposit of approved demat securities.

At least 50% of the Effective Deposits should be in the form of cash.

Where does it say client has to maintain that ratio …it says CM - means clearing member.