Queries related to long Futures delivering into stocks with my cash component margin available from pledged liquid fund

I bought a stock futures at price of say 1000 rupees having lot size of 500.
I had 5L margin in my account as Collateral from my liquid funds. From this 5L, margin required for my long futures was around 2L which is now blocked and so I have remaining 3L available margin in my account from liquid collateral.

My question are,

  1. If on expiry day, stock spot price falls to 900, I will be in loss of around 50K from my futures position. Here hope I can take my futures position till expiry day with 3L available as margin as it can meet up the twice the margin requirement before 2 days of expiry. Is my understanding correct ?
  2. With cash component of 5L in my account, If my initial margin for long futures is around 2L and if I have loss of around 1.5L in my futures, now total available margin left in my account would be 1.5L (5-2-1.5). Is this understanding correct ? And here on 2 days before expiry, my margin requirement doubles, so then margin requirement would become 4L and loss of around 1.5L, so total margin block would be around 5.5L, but I had 5L only in my account. Will I have interest charged in this case ? Is my understanding correct in this scenario as initially thought i would take delivery of my futures into stocks and so i need 1000*500 = 5L max as margin to meet any situation out of my future position.
  3. If I do let my futures expire, Will system automatically unpledge and sell my liquid fund to get me delivery of stock at the price of 1000 with size of 500 shares ? Or Do I need to unpledge and sell my liquid fund to meet delivery obligation ?

You can use liquid collateral as margin without any restrictions and as you have presented, it will aslo meet your twice SPAN + Exposure margin requirement during expiry. Though keep this in mind, Futures are Marked-to-Market, which means any profit/loss you will be making in a day is settled on the same day. So if you are making a loss you will need cash in your account to cover this, else your account will result in a debit balance on which there is interest charged at 0.05% per day.

Collateral received from pledging cannot be used to settle your losses.

Again, to take delivery of shares you will need cash in your account, if you do not have enough cash your account will result in debit balance, you are required to bring in funds if your account results in a debit balance after physical delivery failing which the delivered shares will be liquidated to make good of the debit balance. Interest will be charged at 0.05% per day on the debit balance in the account.

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Thank you so much for your explanation. With your explanation, I just wanted to confirm my understanding again and have one followup question.

So, whatever loss i make with my futures everyday should be met from my own cash and not from collateral cash component of pledged liquid fund. Is my understanding correct ?

So, in this situation. I should have unpledged and sold my liquid fund and keep the cash in my account before my delivery obligation.
Is my understanding correct ?

Followup question:
If I have 5L in my account fully from own cash and not from any pledged ones. In this case, If I am having loss of around 2L from futures and already 2L blocked initially as margins of long futures and so only 1L is left in my account. Now 2 days before expiry, since margin doubles and in this example my margin increases from 2L to 4L, i need to maintain 2L in account, but i have only 1L, so this leads to debit balance right ?
Because why I am asking this question is that I am thinking that totally 5L cash in my account is enough in this scenario for whatever my futures may bring the loss as i would end up taking delivery of 500 shares at 1000 rupees and which requires only 5L right.
Is my above understanding not correct ?


Right, but if you unpledge your liquid funds, how will you fund margin requirement to hold futures?

This 1L will be margin shortfall, as you need 4L to hold your position but you only have 3L.

In this scenario, you will receive margin call to add funds, if you do not add funds then your position will be squared-off by RMS.

You can read more on physical settlement here.

Thank you so much for your explanations.

Oh, yeah. I must think about it.

I understood. Thank you so much.

If MTM profit is there on a particular day,wii it be added as CASH in my account so that ,that cash
can be used if there is MTM loss in subsequent days,???

Yes, the MTM profit is credited to your account and is part of your cash balance, you can use it wherever you want.

Thanks for your IMMEDIATE( reply )clarification