13.14What is margin against shares?
1What is it?
You pledge holdings (shares, ETFs, some mutual funds) to your broker and get collateral margin (after a "haircut") to use for trading, usually F&O.
2Why does it exist?
It uses idle holdings for margin. SEBI requires a portion of F&O margin to be in cash (the 50:50 rule).
3Calculation
- Pledge shares worth ₹1,00,000 with a 20% haircut.
- Collateral margin = ₹80,000.
₹80,000 usable margin (subject to cash requirement rules).
4Risks
- If holdings fall, margin falls, leading to a margin call.
- Losses on trades may force sale of pledged long-term holdings.
5Quick revision
- Pledge → collateral margin after haircut.
- 50:50 cash-collateral rule.
- Risks your long-term holdings.
6Knowledge check
Q1. What is a haircut?Show answer
The % reduction from market value when valuing collateral.
Q2. ₹2 lakh shares, 25% haircut. Margin?Show answer
₹1.5 lakh.
Q3. Main risk?Show answer
Trading losses can lead to sale of pledged holdings.