Is pledging safer than leaving idle capital in trading account?

General
1

Hi,
Was researching on the best practices to protecting against fraud.
Was wondering,
For a trader, is it safer to invest your capital (say in liquidbees) and pledging it and trading with the collateral margin vs leaving the capital as idle cash with the broker ?

In the first case i understand with the new SEBI regulation even if a broker goes bankrupt you positions are safe as it would have never left your demat. Where as in 2nd case, you may lose your entire capital if the broker goes bust.

2

It’s better to buy something and pledge atleast it will be with exchange or someone, if u keep idle and broker goes burst then no one owns ur money its gone

3

make FD as pledge collateral with the broker for the MAS

4

Was doing some additional research, looks like there is something called “Investor Protection Fund” under which they cover a risk of upto 25L per client in case the broker defaults. @nithin is this correct?

https://www.nseindia.com/invest/investor-protection-fund-trust

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5

But you never know when will you be able to recover your money. It may take many years also.

1 Like
6

Its, not possible with Zerodha or other discount brokers.

7

I am not a Trader and hence, this reply might not be appropriate.

Why dont you move from your normal bank account only that portion that you would require to do a trade on a day. I am sure you will have a notional idea of how much money you might need on any specific day. You could do NEFT or RTGS on a daily basis to your trading account. If you find surplus more than your benchmark set, move it back by end of day. Nowadays NEFT, IMPS and RTGS are 24/7.

Again, I have no clue as to how zerodha operates as I am with icici direct. This is only my personal opinion

8

If you already know the outcomes, then why to go for the latter. Go with the safer option always.

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9

Few problems with this approach

  1. Me and many other day traders deploy full capital
  2. Daily transfer of capital to trading account account will result 70k per txn (unless you are on IDFC)
  3. When you take out the capital it will get deposited in your savings account next day only around noon.

Overall it will be very convoluted and inconvenient.
I am quite convince best bet is to invest the money , pledge the holdings and trade on collateral.
I typically leave 20% of my capital in cash, 30% in cash instruments, 50% in non-cash instruments.

10

Just being open to suggestions and best practices

11

@nithin is this true?

12

70K = 70,000 per transaction???. Is there a typo in here? My experience is that NEFT/RTGS/IMPS for me from my banks is absolutely free 24/7. I get credit into the benificiary accounts within a span of half hour max. Not sure what arrangement Zerodha has though.

Do what is best for you

13

Oops 70 Rs i meant not 70k :slight_smile:

1 Like
14

Yep, this has always been there.

15

Which broker u use

16

My broker is icici direct

17

@nithin @siva-reddy this doubt i always have with me , if i pledge stocks worth 10 lakhs , if the broker face any trouble means , how my pledge shares will be safe , broker can sell and took our money is possible , can you please clarify how about pledging colleterial is safe with broker

18

As per the new pledging mechanism by SEBI, the securities doesn’t leave your Demat account even when they are pledged; Instead, a pledge is marked in favour of the broker. The broker is required to open a separate Demat account labelled ‘TMCM – Client Securities Margin Pledge Account’ for this purpose (TMCM stands for Trading Member Clearing Member). The broker then re-pledges these securities in favour of the Clearing Corporation and obtains margins.

In this way, the Broker won’t be able to misuse the client’s securities as they won’t be leaving their Demat.

You can read more here.

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