What is pledging?

Why do people pledge? What is cost of pledging? Can margin from pledging be used for buying more stocks, buying/selling F&O?

Can margin from pledging be used for buying more stocks, buying/selling F&O?

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Hi trader,

Pledging is giving your stocks as a security for a loan. Similar to how you pledge gold jewelry to get a gold loan. In our context, people pledge with us to get margin which can be used for trading.

At Zerodha, pledging costs Rs.60 per scrip/stock irrespective of the quantity. So what this means is if you have 100 shares of Reliance in your demat, you pledge it, you are charged Rs.60. there’s no charge fro unpledging it. So the total cost of pledge+unpledge is Rs.60 per stock.

If you pledge the same stock multiple times, each time you pledge, the cost will be Rs.60. So if in the above example, you pledge 50 stocks first and then the next 50 after a few days, you pay Rs.60 + Rs.60.

When you pledge, you get a collateral margin. Since it is a margin and not cash that you are getting, you can use it only for products where margin is blocked. So essentially to trade futures (both buying/selling) and trading options (only shorting/writing). To buy options, exchanges ask for cash, hence this margin can’t be allowed for buying options. Similarly exchanges ask for cash to buy stocks, so this can’t be used for buying equity delivery. It can be used for intraday equity trading though.

Hope that helps. :slight_smile:

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Nice explanation, but few new questions raised…

  1. How to determine which stock have pledging benefit or not, before invest in it?
  2. Why some stock have pledge benefit some not? Who decide that SEBI or some other?
  3. Which Stock is better then Pledge enable or non pledge?

Check this list of stocks approved for pledging at Zerodha and also go through this post.

Consider if I have pledged 100 shares of ITC. In future if I unpledge 50 on oneday and rest of the 50 shares after few months. Total transaction charges would be 60+GST or something else?

It would still be Rs.60+GST.

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Thanks for clarification. :+1:

Hi,

is there any duration lock to keep pledged or any other charges associated with that?

If the collateral isn’t used, it will be returned back to you once every 90 days to comply with SEBI’s Quarterly Settlement circular.