Zerodha Margin – A Comprehensive Guide About Margin (2020)

What is Zerodha Margin

Zerodha-margin-featured

Margin is the money borrowed from the broker to buy stocks.

You can also say that Margin is the facility to buy stocks that you can not afford which means you have to only pay the marginal amount of actual value to buy stocks.

Margin helps you to buy more quantity than you can afford with your capital at that time.

For that broker will lend you money to buy shares and take them as collateral.

Margin is paid in cash as security.

This margin settled when you square off your position.

Every stockbroker, Like the Zerodha trading platform, also provides some margin to traders.

Let me help you to understand with an example.

Suppose that you have a total capital of 1000 Rs. And your broker provides 10 times margin.

That means that you can trade up to 10000 Rs.

Different Types Of Zerodha Margin

Initial-margin-maintenance-margin-variation-margin

Initial Margin

Initial Margin is the amount that we have to give to a broker to place any trade which is also called collateral.

A Trader can offer cash or any securities to initiate any trade.

In most cases, the initial margin requirement is 50% or it can vary according to exchange.

Maintenance Margin

The maintenance margin is the amount required after initiating your trade to compensate for the MTM losses.

It is required in case if price drop below certain limit your broker will place margin call and if you are unable to compensate than your broker can liquidate your positions.

Mostly, the Maintenance Margin requirement is 30% or varies according to a different exchange.

Variation Margin

The Variation Margin is the amount that you have to deposit in your account to bring it up to the initial margin after big losses.

Because after big losses your margin will fall below the maintenance margin.

Variation Margin = Initial Margin – Margin Balance.

Gross Exposure Margin

Gross Exposure Margin is the amount that you have to pay daily for your open positions.

Your broker can collect the amount in the form of cash or any other collateral for safeguard against any fraud from the trader ends.

Special Margin

In some cases, some stocks may show abnormal variations in price and volume.

For those cases, exchange imposes a special margin of 25% to 50%.

This always depends on the different variables.

Mark to Market Margin

Mark to Market Margin is the amount that every trader has to pay when your position goes in opposite directions.

It is always calculated on the closing basis like the difference between yesterday closing and today closing.

Ad-hoc Margin

As introduced by the SEBI guideline, Adhoc margin is imposed on traders with a very large position or in some illiquid stocks.

Span-margin-exposure-margin-total-margin

Span Margin

Span Margin is the same as the initial margin.

It is the minimum amount in your trading account to place any trade.

The initial margin is calculated using software called SPAN (Standard Portfolio Analysis Of Risk).

That is why it is called the Span margin.

Exposure Margin

Exposure Margin is the amount above span margin.

It always depends on the broker to apply this or not but mostly all broker apply charges to overcome any fraud loss.

Total Margin

The total margin is the amount required to carry forward your position.

It is the summation of span margin and exposure margin

Zerodha Margin Requirement

The margin requirement is the percentage of security value that will be used as collateral for financing the purchase.

It can be further classified into the Initial Margin Requirement and Maintenance Margin Requirement.

According to Regulation T of the Federal Reserve Board, the Initial Margin Requirement is 50% and for Maintenance Margin Requirement of 30%, while the higher-margin requirement is applicable for some securities.

Benefits of using Zerodha Margin

Margin-benefits

Let’s understand the benefits of margin with the help of an example.

You have Rs 5000 cash in your account and you get a margin of worth Rs 5000. 

Then you buy some securities worth Rs 10000.

When this value of securities or share is increased by 25% and your broker margin remains Rs 5000 then your cash will become Rs 7500. 

This means that your cash grows at a rate of 50%.

Increased Returns

The main advantage of using margin is that you can leverage your investment and if you pick the right investment then margin can drastically increase your returns.

Competitive Interest Rate

The interest rate in margin trading very less compared to other industries.

Flexibility

Flexibility means that you can leverage your investment while having limited cash in your hand.

This allows you to take advantage of different market opportunities.

Diversification

Margin helps to diversify your portfolio through which you can hold high quantity.

Easy Finance

You can easily get a margin without doing additional paperwork or fees.

Risks Involved In Using Zerodha Margin

Margin-risk

Let’s understand the risk of margin with the help of an example.

You have Rs 5000 cash in your account and you get a margin of worth Rs 5000. 

Then you buy some securities worth Rs 10000.

When this value of securities or share is decreased by 25% and your broker margin remains Rs 5000 then your cash will become Rs 2500 from Rs 5000.

This means that your cash loss rate is 50%.

Margin trading is a very sophisticated process that has a very high risk.

Amplified Losses

We all know that margin trading can increase your gain.

However, it can also amplify your losses.

In reality, you can end up losing more than what you invested.

Margin Call

A margin call means that when your broker tells you to add more money in your account to maintain the margin account.

This occurs when you have big losses due to some nonperforming shares, then your margin account crosses your margin maintenance level.

Then you have to sell some shares or add more funds to avoid auto square off.

Liquidation

According to the Margin loan agreement, a broker can take any action on you if you fail to fulfill their promise.

If you failed to add more money while margin call comes then the broker can liquidate any assets in your account.

Zerodha Margin against share

Pledging-1

Many traders ask that is there any margin provided by Zerodha against share.

Yes, it provides margin through the process of pledging.

Now you might be thinking that what is Pledging.

Pledging means giving your stocks as security for loans like a gold loan.

Pledging is done to get a margin that you can use for your trading.

This extra margin can be used for intraday or delivery trading.

Pledging-2

You can pledge with your stocks or ETF also.

Pledging-3

In Zerodha there is a fixed charge for pledging i.e. 60rs/script/stock irrespective of quantity.

Zerodha Margin against mutual fund

A lot of retail investors ask that if any margin provided by Zerodha against the mutual funds.

But till now there is no facility for pledging mutual funds in your portfolio.

No discount broker provides this facility including Zerodha.

Points To Remember While Using Zerodha Margin

If you use BO(Bracket Order) and CO(Cover Order) then you will get the high margin as per given by the Zerodha team.

Margin can change anytime according to market conditions.

You have to settle the margin amount within a specific time depending on different segments.

Auto square off the timing of your trades is around 3:20 pm of any trading day.

Some Frequently Asked Question

Q. How much margin Zerodha give?

Zerodha gives margin from 3x to 12.5x times for different stock.

However, these value changes on the basis of stock market conditions and the volatility of shares.

Q. Does Zerodha provide a margin for equity options?

Zerodha offers a margin of 2.5x for options.

Q. How much limit Zerodha provide?

Up to 20 times limit provided by Zerodha.

Q. How much margin required for equity futures?

Zerodha gives 2.5x times margin for futures.

Q. How much Zerodha charge for equity intraday and equity delivery?

Zerodha charges flat 20 or 0.01% whichever is lower for intraday and delivery trading is free of charges.

Q. What happens if I don’t sell intraday shares in Zerodha?

If you buy in MIS, BO, CO then it automatically squares off at 3:20 pm or if you buy in CNC then it will carry forward.

Q. Can I sell CNC shares on the same day in Zerodha?

Yes, you can easily sell or buy CNC shares in Zerodha on the same day.

Q. What is a margin required for intraday trading?

Zerodha gives a 3 to 12.5 times margin according to a different script.

Q. What is LMT in Zerodha?

LMT means Limit order in Zerodha.

Q. How many maximum shares can I buy in intraday?

There is no limit on the number of shares it always depends on the capital you have.

Q. Are there any special charges for using the Zerodha margin?

No, you have to pay brokerage and taxes. There are no separate charges for using the Zerodha margin.

Q. Is there any minimum balance required to use the Zerodha margin?

No, you didn’t need to maintain any minimum balance for using margin trading.

Q. Can I withdraw my margin amount?

No, you cant withdraw that amount.

Q. How to use Margin in Zerodha?

If you want to use margin then you can place Bracket Order(BO), Cover Order(CO), Limit Order(LMT), and Stop Loss Order(SLM).

Q. What is Zerodha margin?

Every broker provides some margin for all securities which helps us to buy more quantity than usual.

Q. How to Get Margin in Zerodha?

Zerodha provides a margin for all clients, you have to use it by placing order other than MIS order like Bracket Order(BO), or Cover Order(CO).

Q. What is MIS Margin in Zerodha?

MIS means Margin Intraday Square Off which means all trade which placed under MIS order will last only for one day.
You have to close your position on the same day.

Q. What is Span and Exposure Margin in Zerodha?

Span margin is the minimum amount blocked for any securities and Exposure margin is the amount above the span margin for managing any MTM loss.

Q. How to Check Margin in Zerodha?

For margin checking, you can read this comprehensive article here.

Q. What is Free Cash, Margin Available, Margin Used and Account Value in Zerodha?

Free cash
It is the amount in your trading through which you can easily place new trades.

Margin Available
The total amount which is available on trading account to trade.

Margin Used
The amount which is used from your account for placing trades.

Account Value
It is the total amount of Margin available and Margin used. Account value = Margin Available + Margin Used.

Q. What is Margin Statement in Zerodha?

The margin statement is the format prescribed by SEBI.

It is sent to all traders through which they can see how much margin available so they can take a new position without any charges and penalties.

Q. How to Place Margin Order in Zerodha?

You can place a margin order by placing Bracket Order(BO), or Cover Order(CO).

Q. How to Calculate Zerodha Margin?

Zerodha provides its own margin calculator.

You can follow this comprehensive guide here.

Q. How to Enable Margin Feature in Zerodha?

The margin feature is automatically enabled for all clients.

If you want to use margin then you have to use Bracket Order(BO) or Cover Order(CO).

Q. What is Pledge for Margin in Zerodha?

Pledge for margin means that you are giving your securities like stock or ETF holding for a loan.

Q. How Margin Trading Works in Zerodha?

Margin trading means leveraging.

If you want leverage then you have to place some different orders like Bracket Order.

Q. Why Zerodha Margin Reduced?

Zerodha margin is reduced across all segments.

This is because of the new margin policy by SEBI.

According to this policy, brokers can not provide an additional margin.

Now the margin is the same across all brokers.

Q. What is Margin Trading in Zerodha?

Margin trading means getting additional leverage to trade.

Q. How to Open Margin Account in Zerodha?

All accounts opened at Zerodha is a margin account.

Q. How many Charges for Zerodha Equity and Zerodha Commodities?

Zerodha charges flat RS 20 or 0.01% which is lower for all their segment.

1 thought on “Zerodha Margin – A Comprehensive Guide About Margin (2020)”

  1. The article on margin is very useful for traders. How it impacts you will trading has been lucidly brought out. It’s a must read for new investors.

    Reply

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