Say you have Rs 1,00,000/- in your trading a/c and with BO/CO, you can take position worth Rs 25,00,000/-. Assume you have taken a long position in X stock with that Rs 25,00,000/-, hoping it will go up as per your calculation, so that you can earn a lot.
But some budget news goes against the Stock and it suddenly down by 10% in a fraction of second.
Zerodha RMS will try to square off your position when your loss crosses 80% of your account value i.e. in the above case it is Rs 80,000/-, when your loss becomes Rs 80,000/- or more, RMS will square off your position and book the loss, this will work on normal occasion, but during extreme volatility, RMS can’t square off exactly because the sudden jump in price happens in a fraction of second.
In the above case, RMS will square off your position at 10% , the stock which you bought with Rs 25,00,000/- value is now Rs 22,50,100/- with a loss of Rs 2,49,900/- leaving your trading ac with debt of Rs 1,49,000/-
Now the question, how Zerodha will collect this debt from you and there are legal provisions, but take long time to settle and even after long time also it is not guaranteed to recover debt from client. whether you are paying to zerodha or not , Zerodha as a Trading Member must pay this amount to exchange before settlement cycle., zerodha can’t say to exchange that the client is yet to clear is debt.
With 6,00,000+ client base, offering 25x leverage (BO/CO) on extreme volatility situation is not a very good idea.
So, Zerodha must cut sufficient leverage.
Having a stoploss in place also will not help, because the stoploss itself managed by OMS only. Your stoploss is not with exchange. So there is no guarantee that your stoploss will save you in extreme volatility
If some broker is offering high leverage on extreme volatility situations, then assume soon he will go bankrupt (Assuming the broker is having good client base to create disaster)