Posted on Wednesday, February 18, 2015
Modified on Wednesday, July 22, 2015
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Margin against share is a value-added service provided by the share brokers in India. This service offers client to use shares in their demat account to get the margin funding needed for trade.
Note that not all share brokers offer margin against shares.
Also known as Collateral Margins, Margin against share is available for different trading segments and depend upon the broker.
Note that with most brokers, margin against share doesn't cover 100% of the margin customer need for trading. Brokers has the "Cash-Collateral proportion" which client has to maintain. Most brokers has Cash-Collateral proportion in the ratio of 10:90, which means customer still have to keep 10% in cash for margin.
In F&O segment; for Mark to Market losses, customer need to have cash margin. Fail to provide the cash margin leads to sell of the stocks he kept for margin to settle the obligation.
Margin against share is the service provided by brokers to its customers for free. This facility is for customers who hold shares in their demat account for long term investment. Customer could use these idle shares as asset (similar to cash) so that broker could give margin against such assets for the client to trade.
In simple words instead of using cash, customers could use shares and get margin needed for trading with the share broker.
Here are few more benefits of using shares as margin for trading:
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:
Usually brokers do not charge anything as such for using the facility of margin against share.
But there is a cost involve for off-market transfer for shares between clients account to broker's beneficiary account. These charges depend on your DP and also on your broker. i.e. Zerodha charges Rs 60 for transferring shares back to clients account for ISIN number.
The client remain the owner of the share at all time, even after transferring the shares to broker for collateral margin. This the clients receive all the benefits including dividend, bonus shares, voting rights etc.
When the shares are transferred to the broker, client gets margin against those shares after the exchange prescribed haircut.
Say for an example, if 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 Rs85,000 collateral benefit client will need to have a minimum cash margin of Rs.9444 (Rs 85000 * 10/90).
Many brokers in India offers margin against share facility. Here are some of them:
Zerodha, India's leading discount brokers offers collateral margin or margin against share for trading in Equity F&O segment.This facility is not available for any other trading segments.
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 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 F&O segment.
This facility is available to trade in both equity delivery & cash segment as well as equity F&O (Equity derivatives) segment.
Indiabulls offers margin against stocks in 'A' group only.
RKSV, the Mumbai based discount broker doesn't offer collateral or margin against shares.
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