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Margin Trading Pledge: What is it? | Charges | Creation | Closure | 2022

Margin Trading Pledge: What is it? | Changes | Creation | Closure

During the month-end time, if the market falls and you don’t have enough cash in hand to utilize the buying opportunities. If your fellow friends are in a similar situation and can’t extend support by offering cash then you can definitely try Margin Trading Pledge option. In today’s article, we talk about in detail What is it? How you can create the pledge and close the same? Let’s get started!

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What is a Margin Pledge with Example?

You may be interested in increasing your margin in the marketplace. Pledging can help you get that extra margin, especially if the cash margin is limited. In these cases, you can pledge your stocks and benefit from an additional margin after a haircut (Haircut is the amount that covers the risk a broker is exposed to if the collateral share prices move erratically).
Generally, pledging refers to the process of using your stocks as securities to enjoy the benefits of a loan. It operates like any other loan, like gold jewelry in a gold loan, where you use an asset as collateral.

Pledged shares are not moved from your Demat account, by following the pledging process you will be creating a pledge in favor of your broker. Effective September 1, 2020, the pledging of shares was made mandatory in the capital markets.
Let’s look at an example for a better understanding of the Margin Trading Pledge.

Example:

Let’s say I am an investor who has shares in INFY, MTAR, and HAL worth Rs. 2,00,000 in his stake. Now an exchange opportunity comes up but due to a lack of funds, I am unable to seize it. As a result, I decided to give my shares to the broker.
He then deducts a % haircut of say 20% from the total value of my stocks (calculated at their current market price), i.e., Rs. 40,000 and gives me the remaining value of Rs. 1,60,000 as a collateral margin which I can now use for trading opportunities.

Let us explain “How to initiate the Margin Trading Pledge Request”. here we are taking the example of an ICICI direct broker. However, the Margin Pledge request is the same for another broker also.

Margin Pledge Request

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Time needed: 5 minutes.

In this paragraph, we will explain the step-by-step process of pledging shares bought under Margin Trading.

  1. Platform

    Log in to the trading platform and Go to shares as margin.

  2. Margin Pledge

    Click on margin pledge under more menu and enter the desired quantity you wish to pledge.
    Once your position is successfully created, right after the end of T-day market hours, you will see the status of your position on the Pending for Delivery page. Once the pledge request is initiated, the status on this page will reflect as ‘Pledge Requested’.

  3. Link

    You will receive a link from NSDL/CDSL between 7-10 PM on ‘T’ day.

    In case you do not receive the link by 10 PM, you can use the NSDL/CDSL links mentioned on the Pending for the Delivery page to confirm your pledge. If you have received the link, then on clicking, the above page will open. Please enter your PAN number and click on ‘Submit’ to proceed

  4. Validate

    After logging in through your PAN number, you will find the details of your Pledge request there. Select the final stocks you want to proceed with Pledging and click on ‘Generate OTP’.

  5. Generate OTP

    Verify pledge details and generate OTP

  6. Confirm

    Authenticate OTP and click on confirm button

    After OTP confirmation, the above message will appear, highlighted in green.

  7. Customer Confirmed

    You can track your Pledge status on the Pending for Delivery page. ‘Customer Confirmed’ status will reflect till you receive the payout of shares in your Demat account

  8. Pledge Created

    Once the shares are successfully credited to your Demat account, the status will reflect as ‘Pledge Created’. After this, you can convert your positions to delivery.

Charges of Margin Trading Pledge

ServiceCharges/fees (amount)
Rupees
Account Maintenance charges

for Corporates and Client Securities Margin Pledge Account.
500/-
Margin Pledge

Release of Margin Pledge to BO/set-up by BO
Invocation of Margin Repledge
Per request payable by the initiator of the transaction which is in setup mode.
[The clearing corporations will not be charged for initiation of any
type of margin pledge/repledge transaction]
5/-
Release of Margin Re-pledge

Margin Re-pledge
Per request payable by the initiator of the transaction which is in setup mode
[The clearing corporations will not be charged for initiation of any
type of margin pledge/repledge transaction]
1/-

Bottomline

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Days are gone when you have to see other people’s faces for seizing an opportunity. Even to capture a trading opportunity one should not ask others to lend money. Brokers know all these scenarios which you may come across hence they try to make use of every opportunity from their customers. Thereby they offer you a pledge-like option but that comes with a price tag. But if you think you can make more profits by pledging your shares than the price it comes then please go for it!

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