What is collateral margin? How does it work?

What is collateral margin? How does it work?

  • Many times, users may have limited cash margins which may lead to missing out of some trading opportunities.
  • In such cases when a client wants to invest more in the securities but do not have funds available immediately then, he can take a loan from his broker against his existing securities in the demat account. These securities are held as a guarantee and a loan is given by Jainam on pledging the units. This loan against the securities by the broker is called collateral margin.
  • The shares in the demat account are held as collateral and the broker offers a pledge margin for additional funds for trading or investing after a deduction called a haircut.
  • For example: If haircut for an approved G-sec is 10%; then for every ₹ 100 worth of stock pledged, you will receive collateral margin of ₹ 90.

RELATED FACTS: -

  • These margins can be used for equity intraday trading and future and option writing.
  • Commodity future and options cannot be traded using collateral margins.
  • Collateral margins cannot be used until negative balances are cleared.
  • The collateral amount is calculated from the previous closing price of the security after haircut and it is added to the total margins available.
  • The collateral margin received can be seen in Jainam Pro 2.0 as collateral is available by going to hamburger menu and selecting Funds.
  • Pledged holdings can be sold instantly even without placing any unpledged request at Jainam.
  • The collateral amount is based on the price of the security and the cost of pledging for collateral is rs. 12 per pledge/unpledge request at Jainam.
  • The exchanges require that 50% of the margin for F&O positions must be in cash or cash equivalent collateral, while the remaining 50% can be in non-cash collateral margin. In case there is a shortfall in the cash margin requirement for overnight positions, and it is funded by non-cash collateral, a delayed payment charge of 0.5% per day is applicable on the shortfall in the cash margin requirement.