here’s a clear, India-specific, step-by-step playbook to use pledged shares as margin for trading
Step 1: Check prerequisites (one-time)
- KYC completed with your broker.
- F&O segment activated (if you want to use margin for futures/options).
- You already hold eligible securities (stocks, ETFs, mutual funds, bonds) in your demat account.
- Note: Not all securities are approved for pledging → check your broker’s approved list and applicable haircuts.
Step 2: Know the rule of the road (important)
- India uses the pledge / re-pledge system via the depositories (CDSL/NSDL).
- No off-market transfers are allowed.
Step 3: Choose what to pledge
- Low-haircut items (e.g., liquid ETFs / liquid funds) are best when you need cash-equivalent margin.
- Many brokers treat liquid funds as cash-equivalent.
- Higher-volatility stocks have higher haircuts.
Step 4: Initiate the pledge in your broker app
- Go to Holdings → Pledge (name may vary by broker).
- Select scrips and quantity, then submit.
- Typical broker charges: ₹20–₹30 + GST per scrip
- Example: Upstox ₹20, Zerodha ₹30.
Step 5: Authorize on the depository (CDSL/NSDL)
- You’ll receive an OTP link via SMS/email.
- Complete OTP on CDSL or NSDL to confirm the pledge.
- Without this step → no margin is credited.
Step 6: See margin credit
- After authorization, your trading platform will show:
- Collateral (Equity)
- Collateral (Liquid)
- Haircuts are already applied by the broker.
Step 7: Use the margin — how it works
- Futures / Option writing (short):
- Collateral counts toward SPAN + Exposure.
- Must maintain 50:50 cash vs non-cash mix, or pay interest on the shortfall.
- MTM losses must be funded in cash.
- Option buying (long):
- Some brokers allow using collateral.
- Any premium funded by collateral draws DPC (~0.05%/day) until cash is added.
- Cash is always used first.
- Equity delivery with MTF:
- Separate facility.
- Broker funds a portion, your shares are pledged.
- Interest charges apply.
📊 Example: Using Pledged Shares for Margin
Portfolio you hold (Delivery in Demat)
- Reliance: ₹60,000
- HDFC Bank: ₹40,000
- NiftyBees ETF (liquid): ₹50,000
Total portfolio = ₹1,50,000
Step 1: Apply Haircuts (broker/sebi specified)
- Reliance (haircut ~20%) → Margin value = ₹60,000 × (100% – 20%) = ₹48,000
- HDFC Bank (haircut ~20%) → Margin value = ₹40,000 × (100% – 20%) = ₹32,000
- NiftyBees ETF (haircut ~10%) → Margin value = ₹50,000 × (100% – 10%) = ₹45,000
Total collateral margin = ₹1,25,000
Step 2: Broker charges for pledging
- Say you pledge 3 scrips.
- Broker charge: ₹30 × 3 = ₹90 + GST (one-time until you unpledge).
Step 3: Cash vs Non-cash Rule (50:50)
- Total margin available = ₹1,25,000
- For F&O positions, at least 50% should be in cash/cash-equivalent.
- NiftyBees (₹45,000) is treated as cash-equivalent.
- So, cash-equivalent available = ₹45,000.
- You can use full ₹1,25,000, but if your required cash is more than ₹45,000, you’ll pay interest (DPC ~0.035% per day) on the shortfall.
Step 4: Example F&O Trade
👉 Suppose you want to short 1 lot of Nifty Futures.
- Margin required ≈ ₹1,20,000 (as per SPAN + Exposure).
- You have pledged margin = ₹1,25,000 → ✅ Position allowed.
- But required cash component = ₹60,000 (50% of 1,20,000).
- You only have ₹45,000 cash-equivalent → shortfall = ₹15,000.
- Broker will still allow trade but charge DPC on ₹15,000.
- DPC = 0.035% × 15,000 = ₹5.25/day until you add cash.
Step 5: If you buy options instead
- Suppose you buy Bank Nifty Calls worth ₹50,000.
- Premium must be paid in cash.
- Your pledged margin cannot directly pay premium.
- If broker allows collateral use, debit of ₹50,000 gets adjusted, but then DPC = 0.05%/day on ₹50,000 = ₹25/day until you fund it with cash.
✅ Key Takeaway
- Your ₹1.5 lakh portfolio → ₹1.25 lakh usable margin.
- You can comfortably take 1 Nifty lot (₹1.2 lakh margin).
- To avoid daily interest, keep at least ₹15,000 cash in your account.
- Pledged ETFs (like LiquidBees, NiftyBees) help meet the cash requirement.