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Margin Against Shares in Demat Account - How it works?

Published on Wednesday, February 18, 2015 by Chittorgarh.com Team | Modified on Monday, May 28, 2018

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Margin Against Shares in Demat Account - How it works?

Margin against share is a loan against share an agreed interest rate offered by your stockbroker for trading purposes. It is a value-added service provided by the share broker. This service offers the client to use shares in their demat account to get the margin funding needed for trade. It’s known as Collateral Margin.

Very few stockbrokers in India offer this product as there is a higher risk associated with it.

Margin against share doesn't cover 100% of the margin. Brokers have the "Cash-Collateral proportion" which client has to maintain. The ratio of Cash-Collateral Proportion varies by the trading segment (Delivery, Intraday etc.), share category (A, B, C, D, Z) and the broker rules.

The amount of margin made available is calculated by reducing 'haircut' from the current market price of the equity share. The haircut is an amount in % which covers the risk for the broker in case collateral shares prices moves unexpectedly. For example; for Reliance Industry share the haircut is 20%. This means you get the loan up to 80% of your Reliance Industry shares.

In F&O segment; for Mark to Market losses, customers need to have cash margin. Fail to provide the cash margin leads to sell off the stocks he kept for margin to settle the obligation.

Why do I need margin against securities/ stock/shares?

Margin against share is the service provided by the broker to its customers who hold shares in their demat account for long-term investment and would like to use them as collateral for the loan. The customer could use these idle shares as an asset (similar to cash) so that broker could give margin against such assets for the client to trade at an agreed interest rate. Most broker charges 0.05% interest rate per day for the loan against shares.

In simple words, if the customer is out-of-money in the trading account or needed immediate cash for trading, he could use shares and get margin needed for trading.

Here are few more benefits of using shares as margin for trading:

  • T+2 days to arrange funds while buying stocks
  • Make most of Indra-day Market volatility and trade in Margin, Futures, and Options

How does collateral margin works?

The broker gives margin to its customers for the securities held by the client in their demat account. Here are the steps about how collateral margin works:

  • Check if the broker offers this facility
  • Visit brokers back-office website and go to your demat holding page.
  • Click on Pledge Share button next to the share you would like to pledge.
  • These shares are called Collateral Holdings or pledged holdings.
  • The broker deducts a certain percentage as a haircut for the price fluctuation of the holdings and allows the client trading limits for the balance amount.
  • The client uses this margin for trading.
  • If clients don't want these shares to behold by the broker for margin against share; they can visit the back office and unpledged the share the same way they pledge.

Are there any additional charges for using margin against shares?

Yes, Interest for loan and demat pledge/unpledged fee is the cost of borrowing.

Interest is charged at around 0.05% per day. Pledging and unpledging the shares cost around 50 rs per script.

Note that all the corporate action benefits like Dividend, Bonus, Rights Issue, etc shall accrue to the client and not to the broker since the client continues to be the end beneficiary of the shares.

How is the margin being calculated for shares client transferred to the broker for margin funding?

The client gets margin against the shares after the exchange prescribed haircut.

The haircut is the amount in % to cover the risk due to price fluctuation of the stock. Stock exchange prescribed the haircut and its same for all brokers.

Say for an example, if the client has transferred shares worth Rs 1 lakh and if the exchange prescribed haircut is 15%, then the collateral value of the shares will be Rs 85,000.

The Cash-Collateral proportion in clients account for the position held by the client will always be calculated in the ratio of 10-90. Accordingly, to utilize the entire Rs 85,000 collateral benefit client will need to have a minimum cash margin of Rs. 9444 (Rs. 85000 * 10/90).

Brokers who offer margin against shares

Many brokers in India offers margin against share facility. Here are some of them:

SAMCO

SAMCO, the Mumbai based discount stock broker offers a variety of leverage products.

  1. CashPlus for delivery funding
  2. StockPlus for the loan against share for delivery & intra-day funding
  3. IntraPlus for the loan against share for intra-day funding

Read detail about SAMCO Margin Funding - CashPlus, StockPlus & IntraPlus Explained

Zerodha, India’s leading discount broker

Zerodha, India's leading discount brokers offer collateral margin or margin against share for trading in Equity F&O segment. This facility is not available for any other trading segments.

Read Zerodha Review

ICICI Direct

India's largest broker ICICI Securities is offering this service to its customers since Jan 2012. ICICI customers can use shares in their demat account as margin for equity trading.

This facility allows its customers to use idle equity shares in the demat account to buy stocks and bring funds by T+2 days. Customers can put to use their existing stocks and create limits to invest and trade. These limits can be used to trade in Margin and continue trading in the F&O segment.

This facility is available to trade in equity delivery & cash segment as well as equity F&O (Equity derivatives) segment.

Read ICICI Direct Review

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User Comment

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9. Jay Mehta  Jul 18, 2018 5:58:32 PM Reply
Margin Trade Funding (MTF) is a flexible option for investors; it enables them to trade beyond owned resources and boost their profits if the prices increase on expected lines. The service is granted against a pre-approved list of securities by the broker, subject to predefined haircut or margin. A margin account's buying power changes on a daily basis and depends on the price movement of the marginal securities. By using MTF, investors can raise money to buy additional securities without selling their long-term investments.
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8. dhaval  Mar 15, 2018 1:39:28 AM Reply
i have debit balance in my demat trading account but i want to transfer all my shares with another person demat account can it is possible with our in credit balance?
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7. Priya  Mar 1, 2018 9:32:19 AM Reply
I am very surprised when I read that one needs to keep at-least 10% cash collateral for any pledging of shares. Interestingly for most other brokers, this goes to as high as 50%.
I use ICICI Direct and have been using shares as margin for FnO trading regularly. I do not need to maintain a penny in cash, I can go 100% shares only as margin. Secondly, the haircut on most blue chips is only 15%, this is far higher for most other brokers. Third, there is no interest to be paid whatsoever on the pledged money. Finally, transferring the shares in and out of demat for pledging/un-pledging incurs no costs and can be done infinite times seamlessly - again it looks like many eg Rs 60/- by Zerodha). Many say that icicidirect charges hefty brokerages but there are prepaid schemes available which can be quite competitive. Given all the above advantages, I still won''t mind paying somewhat higher brokerage charges as all of these features amply compensates in generating a better income out of the margin money.
Note: I am not in any way associated with Icicidirect, but am just pretty happy with them :) Also, I have not tried others per se, but most of these features do put me off from doing so.
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6. Sunil  Mar 1, 2018 2:05:04 AM Reply
There is some interest you have to pay on your pledged margin .
It''s not completely free
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5. Prashanth  Feb 13, 2017 11:00:43 AM Reply
I have pledged stocks, use the margin and trade F&O. One of the pledged stocks has declared a dividend. Where will this dividend be credited to?
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5.1. Bansi  Sep 19, 2017 12:37:47 AM
In my case they credited it directly to my trading A/C
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4. syan  Aug 7, 2016 1:14:24 PM Reply
please tell me some one about why my brokerage charge interest on late pay but i didnt pay late, actually i am mostely trading in eqity cash BTST or i keep for 10 days 20 days etc and for example in my portfolio already available 20 shares of HDFCbank in cash posstion it means 24,000 Rs value and today buy any shares value of 20 thousand or 25 thousand Rs. in BTST mood so i got time to pay T+2 days and if within T+2days i got profit so same shares of BTST i sold if not reach on profit range than if i have fund so instant on Wednesday before open the exchange i make Pay-in via online immidtly funds credited to broker and i also inform by phone and sent email about payment id Ref. No. etc but if in case that BTST shares not touching in Profit range and in my bank account not have fund so i sold and cash possition shares from my portfolio so if i am selling any cash position from my portfolio insted of that shares or can not payment so immdetly my Debit in NSE will be equel but broker firm they charged 2or 3 days interest so please tell me some one why Geojit BNP paribas do like that please reply me some one i will very thankful to you thanks
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3. syan  Aug 7, 2016 12:55:35 PM Reply
Geojit bnp paribas also provide margin against the delivery of equity cash market trade
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2. sanjay  May 4, 2016 12:15:53 AM Reply
ventura also does it. I want to what are other discount brokers who offers.
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2.1. Sandy  Jun 6, 2016 12:51:12 PM
Hi sanjay, TradeSmart Online has started providing Margin against shares as well as Margin funding
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1. siv  Apr 17, 2015 10:22:23 PM Reply
very very informative,given clear picture....really Excellent
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