Margin Against Shares (MAS) is a facility that allows traders and investors to use their existing stock holdings as collateral to obtain additional margin for trading in stocks, derivatives, or other securities. Instead of selling their shares to raise funds, investors can pledge them with their broker to get extra leverage.
How It Works
- Pledging Shares: Investors pledge their shares with the broker.
- Margin Allocation: The broker provides a margin based on the pledged shares' value (typically a percentage of their market value, considering a haircut).
- Trading with Margin: The provided margin can be used to trade equity, derivatives, or other allowed segments.
- Interest & Charges: Some brokers charge interest on the utilised margin, while others offer interest-free margin under certain conditions.
- Unpledging Shares: Investors can unpledge their shares anytime by repaying the margin used.
Key Points to Note
- The margin amount depends on the LTV (Loan-to-Value) ratio, which varies for stocks.
- Haircut is the percentage deducted from the stock’s market value to determine the collateral value.
- If the stock price falls significantly, brokers may issue a margin call, requiring investors to add funds or pledge more shares.
- Margin against shares cannot be used for intraday trading with many brokers.
