I pledge stocks and use margin on it to trade F&O. How will interest charge be calculated?


#1

I pledge stocks and use margin on it to trade F&O using Zerodha. I got to know that there will be an interest charged on daily basis in case of a debit balance. Can anyone tell me how this debit balance and interest charge is calculated, and also if this is a common practice among brokers.


Does Zerodha charge any interest on collateral margins?
#2

As per Exchanges, on an end of day open position basis, only 50% of margin required to trade F&O can be brought in by the way of collateral (margin received form pledging securities). The remaining 50% has to brought in as cash. If the client doesn’t bring in cash, a brokerages working capital will be getting utilized. It is a common practice that a brokerage will charge an interest rate if clients end up using their personal funds.

Assume you have pledged Rs 1lk worth of stock for which after haircut you have received Rs 70,000 to trade F&O. Assume that you now want to take F&O positions worth Rs 1lk.

Like I said earlier 50% of this 1lk has to come in cash. But assume you have only Rs30,000 cash in your account. So you use the Rs 70,000 in collateral margin and Rs 30,000 in cash to buy Rs 1lk. But in reality only Rs 50,000 of your collateral margin + Rs 30,000 of your cash + Rs 20,000 of brokers cash will be getting blocked on this trade.

So this Rs 20,000 is basically the debit balance for the day, and a daily interest could be applicable for this debit.

So at the end of every day,

Cash balance - 50% of ( margin blocked + long option value) = Negative (it is the debit balance for the day).

Interest will be applicable on this negative value.


Cash Margin Requirement at Zerodha
#3

Nithin -

  1. so for those who pledge LIQUIDBEES as collateral for trading in derivatives, this new margin rule is NOT applicable?

  2. Is the margin rule mandated by exchanges a new development?

  3. Different brokers seem to have different rules on the margin front. Why is that so?

Ashwin


#4

Nitin-

Say if 70k liquidbees along with 2lac worth of shares are pledged in my account and i took a position in SBIN futures at Rs.180(1 lot), what happens if SBIN falls 20% say around Rs.144.
Assuming i have zero cash in my account.
MTM will be -72k.

How the margin rules applied in this case?

Aravind


#5

Hi Nithin

  • What is the interest percentage? Will this be the lending rate by RBI or any other benchmark?

  • I have seen margins going above the limit at times EOD. Will the interest rate be applicable even if the trading is done using ONLY cash?

  • Is there a link where we can read this circular?

Thanks!


#6

Hi Nitin,

If i have have 10k cash + 40k collateral 

1. On Intraday trades I can still take position for all these 50k amount and no interest will be charged 

2. For overnight positions I will be still allowed to take positions for 50k and interest will be charged on daily basis for the days it is open. 

 


#7

Pledge button is enabled only for stock that i have. It is not enabled for the liquidbees that i have. They are not in T1. They’ve been on my demat for a long time.


#8

Do we need to have 50% cash in case of Options selling where margin alone is required … unlike Futures where additional cash is required for MTM on daily basis …


#9

Yes, 50% of whatever margin is blocked, be it futures or option shorting, needs to be in cash.


#10

Any Circulars ?


#11

Check this: http://www.nseindia.com/products/content/derivatives/equities/margins.htm Search for Effective deposits


#12

gentle nudge to remind you to provide pledging on Zerodha Demat; provide MF purchase


#13

Yep, hopefully early next week for stocks. MF platform should be live by end of the month, Check this http://mf.zerodha.com/home


#14

thanks!!! you are a boon to the investing community !!!


#15

Nithin : you need a dedicated team to make videos and tutorials to walk through each platform.


#16

The link says cash component means cash, bank guarantees, fixed deposit receipts, T-bills and dated govt securities. Are they also permissible?


#17

They are permissible if it is in broker’s name, not in clients name.


#18

I have liquidbees pledged as collateral, will that be considered cash or not. It does not show in my dp so i guess it is in broker’s dp


Easiest way to know at the end of day if cash balance is sufficient
#19

Liquid bees will be considered as cash itself.


#20

Nithin -

  1. so for those who pledge LIQUIDBEES as collateral for trading in derivatives, this new margin rule is NOT applicable?
  2. Is the margin rule mandated by exchanges a new development?
  3. Different brokers seem to have different rules on the margin front. Why is that so?
    Ashwin
    Even I have the same queries. Can you please clariy ?