What is Pledge?

Modified on Wed, 20 Jul 2022 at 05:13 PM

Pledge for Margin helps you use existing portfolio holdings to get collateral margin from exchange and use it to trade. You get collateral margin against your existing portfolio holdings after a deduction on the gross holding. The deduction is called a Haircut (Haircut is the amount that covers the risk a broker is exposed to if the collateral share prices move erratically)


To explain it in simple terms, let’s understand it:

Assume you have Rs. 10,00,000 in cash in your Gill Broking trading account and you want to create a position that requires a margin of Rs. 2,50,000. Also, you have holdings whose value is Rs. 5,00,000. Pledging your existing holdings post haircut gives you an additional margin of Rs. 3,50,000 (if the haircut is 30% on your holdings). Haircuts vary as per the category and quality of stocks. Now, the limit available for you becomes Rs. 13,50,000 (Rs. 10,00,000 of Cash Margin and Rs. 3,50,000 lakhs of Non-Cash Margin which is after pledging).


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