Sir they earn intrest on margin kept by us with them samje sir conflict of intrest hai.after sebi mandated to settle clients funds they have resorted to this cheap technique
hmm… cheap technique? Have you read this post & my comments above on why we have to charge a slightly higher margin to avoid penalties that will make the business unviable otherwise?
What happened with margin penalties & hence a slight increase in margins from brokers is collateral damage & it wasn’t intended, I guess. I don’t know if you have checked this post, but it talks about when there was a push from regulators to increase.
@nithin one question still remains unanswered( peak margin penalty clubbed with upfront requirement). why does SEBI put the onus of intraday margin shortfall on the broker? it does not allow it to be passed on to client. where as EOD margins penalty is passed on.
this is because you interact with them directly.
just like EoD and T+1 time, an hours’ time can be given to fulfill shortfall until next snapshot etc.
why we are being made to pay higher brokerage of Rs. 40 during account turning negative when zerodha itself is blocking 4-5% extra margin. Suppose I have Rs. 50 Lakh n account and carrying positions on which exchange mandated margin is Rs. 49 Lakh but zerodha will be blocking 50.5 - 51 Lakh and account will turn into negative to the tune of Rs. 50 thousand -1 Lakh and I am forced to cut down my position and pay extra brokerage despite my account having sufficient margin as per exchange requirements . Is it another way of shoring up revenue indirectly in the garb of keeping business viable ??
brokerage @ Rs. 40 is being charged on negative margins in opaque manner. In multiple accounts of me and my family, higher brokerage has been charged inspite of me exiting positions to bring account to positive. Why then higher brokerage has been charged for subsequent transactions after account turning positive. Higher brokerage is only during period when account remains in negative. I have not raised ticket because of small amount involved but what matters to me is how it has been programmed into software for calculating brokerage. I think either there is bug in the system on how to calculate brokerage or it has been deliberately left there so that zerodha gets to keep higher brokerage. In case a customer points out charging of higher brokerage after going through lengthy harrowing process of resolution through ticket, zerodha refunds extra brokerage and for rest of the gullible customers, it keeps extra unethically charged brokerage in its pockets because not all of the customers will raise tickets for refund of small amount. but small amounts from lakhs of customer means huge amount of money for zerodha. Another way to increase revenue purportedly to keep business viable.
Calling it a “cheap technique” was maybe not the best choice of words but he/she does have a point.
I like to utilise my full margin for overnight trades & for my current account size, appx 8L extra is being blocked, which even at a conservative 1% per month, gives 96k per year. So, I’m losing out on that amount & you’re able to earn appx 20k on it (taking 2.5% per annum bank rate).
Is there actually provision in the rules for brokers blocking extra margin or is this one of those grey areas? Concept of ad-hoc margins is there but that’s usually there for stocks or it can be applied for derivatives as well?
suppose you deposit Rs. 104 with broker and take a position for which exchange stipulates margin of Rs. 100. Then Zerodha is supposed to deposit 100 to exchange from its bank account however due to blocking 4-5% extra margin, zerodha still has Rs. 4 surplus (free float) in its bank account on which it will earn interest.
This is news for me. i personally dont think brokers are holding the customer’s balance in their bank account - if that was the case then there is a bank risk element to it.
Also i dont believe brokers are not depositing the money to the exchange for each position - i think its only a virtual block & an agreement to settle. Thats why we have the counterparty risk to begin with.
I think the backend process may not take place exactly the way I depicted but in one way or other it forms the crux of float income. @shubhs9 may clarify on the backend movement of funds exactly.
Hey. Just wanted to know. Don’t you keep extra funds at the end of the day?
Because what I used to do before is keep 8 to 10 percent extra in my account just to meet any changes that are made at the end of the day in the margins. I have never gone negative overnight.
Now what I do is I keep only 4 to 6 percent extra. So ultimately it’s the same for me.
Everybody would love to use entire margin overnight. Just wanted to know from you how do you get the exact margin that would be required at the end of the day?
The revenue hit we are taking currently in terms of margin penalty that we are paying out of our pocket, if not for the additional brokerage, we would be losing significantly. It would have forced us to increase the brokerage across the board. Currently, we are trying to reason out with the regulator on these penalties, and hopefully, something will happen about that. Otherwise, this is, for now, our only current option. Not just us but any broker who is not passing the penalty.
The other thing we could have done is to square off positions instantly when margins go negative, but this isn’t ideal.
Most of our large customers who trade derivatives park liquid funds or stocks for margin. So there isn’t any float as such on that. If you are buying options, there isn’t a concept of margin as all the money gets debited.
A broker is allowed to charge any additional margin. This was what the regulator suggested when we first met them with a representation on the penalty.
They generally update the margin at 2 pm, so you see where the the market is at 2 pm, and then adjust accordingly for EOD.
Suppose the market’s at 18000 at 2 pm & you have a short straddle of 1000 quantities of 17000 PE & 19000 CE. Around closing, it rises to 18200. The CE side margin would have risen & PE side would have decreased. So, you can square off 100 quantity of CE & maybe add 50 on PE side.
It’s more of an approximation & takes a bit of time to get it right.
But an intraday margin change is a bit imp. for this & this is why I keep on harping about it on this thread, but to no avail…
