- Pledging is a mechanism that empowers you to take the leverage of the stocks lying in your demat account for Trading purposes. This is similar to borrowing funds by giving stock as an underlying asset.
- The shares would be pledged by you with Upstox and in turn we would fund you to carry trade at exchange.
Read on to find out more on how to pledge or unpledge your shares with Upstox, haircut, key points regarding margin allocation to your trading account and other details:
1. How to pledge shares on Upstox?
You may refer to the link below for a step by step guide for pledging shares.
Steps to follow through Web login: How to Pledge shares(On Desktop)? - Upstox Help Center
Steps to follow through Mobile login: How to pledge shares(via Mobile application)? - Upstox Help Center
2. How is Pledge Value determined on Upstox?
Pledge value is determined by the closing price of the previous trading session. The quantity you wish to pledge multiplied by the closing rate of the previous trading session is your Gross Pledge Amount. The gross pledge amount is deducted by haircut percentage, 100 % of this net amount would be available for trading purposes.
For Example: You pledge 100 shares of ABC ltd and the previous trading session’s closing rate was Rs. 100 per share and the scrip is liable to a haircut of 20%, so
Gross Pledge amount: 100 shares X Rs. 100 = Rs. 10000
Net Pledge amount: Rs 10000 - Rs 2000 (20% haircut) = Rs 8000
So you would be able to take an exposure on the Net value of Rs. 8000 on the securities pledged with Upstox.
3. What is Haircut?
Haircut is a percentage of risk which is liable for deduction from the gross pledge value as per the risk framework of any organisation. Haircut percentage is different for different scrips. The haircut percentage would be VAR or any rate as may be decided by Upstox, whichever is higher.
4. What purposes pledge value can be used on Upstox?
At Upstox, currently you can use Margin pledger towards derivative margin products i.e.:
Futures Buy / Sell
Option Buy / Sell
5.How to unpledge shares on Upstox?
You may refer to the link below for a step by step guide for unpledging Shares.
How to unpledge the pledged shares? - Upstox Help Center
6. What are the applicable charges?
Pledging and Unpledging charges are Rs. 20 + GST per request.
Example for pledge request:
You placed a request to pledge 100 shares of ABC Ltd., 100 shares of XYZ Ltd., here your charges would be ₹40+ GST. Since there are no charges depending on quantity of shares pledge, you charge will be basis the number of scrips you are pledging.
Example for unpledge request:
Continuing from the above example, suppose you placed one unpledge request of 100 Shares of ABC Ltd. and two unpledge requests of 50 Shares each of XYZ Ltd. Total unpledge charges would be Rs 60 + GST, since 3 unpledge requests were placed.
Note: There are no charges for the shares kept pledged with Upstox, so you may continue to keep the shares pledged with Upstox. With pledge being available you may utilise the pledge value to take up any trading opportunity as you wish to.
Cash to Collateral ratio shortage:
Cash to collateral ratio for the margin requirement must be 50:50. Whenever the available cash is less than 50% of your margin requirement, it would be considered a cash shortage. Such shortages would be liable to interest charges @ of 0.05% per day.
Example: You have a futures position the margin requirement of which is Rs. 110000 and suppose your ledger balance is Rs. 20000 and shares pledged with Upstox worth Rs. 100000. Since the cash component (ledger balance) is less than 50% of the margin requirement (i.e. Rs. 110000). An interest would be levied @ of 0.05% on the shortfall amount of Rs. 35000. (50% of Rs. 110000 = 55000, available ledger Balance is Rs. 20000, hence shortage amount is 55000-20000 = Rs. 35000).
Invocation Charges:
In case the shares marked as margin pledge are required to be liquidated by Upstox (for reasons provided in liquidation rules) is termed as “Invocation”. The Invocation charges would be Rs. 50 + GST per instance and statutory charges.
7. What are Exposure and Liquidation Rules?
The exposure is available upto 100% of the collateral value after haircut after deducting for negative ledger balance (if any). The Liquidation rules are as provided below:
Position on the residual pledge value (Total Pledge Value - Negative Ledger Balance) shall be permitted upto 5 days as permitted by the exchange.
To the extent of negative ledger balance, the pledged stock shall be liquidated through invocation any time after T+5 day. However, based on the market condition and volatility in the existing position / valuation of pledged stocks, Upstox reserves the right to liquidate the pledged stocks anytime through invocation.
All the existing position(s) shall be squared off any time where MTM / Loss has breached 70% of available exposure value to the client. Post squaring off the position if any amount is recoverable the collateral shall be squared off any time to such extent.
Note: Square off of position or collateral shall happen at the prevailing market price. Loss if any shall be borne by the client. All other RMS rules apply.
8. When can my Pledge or Unpledge request be rejected?
Pledge:
The clearing corporations have set Scrip wise market level and Broker level pledge limits. If at any point any scrips limit has been breached at Upstox level or any scrip is 90% of overall market level limit, your pledge request may be rejected.
Unpledge:
Unpledge requests would generally not be rejected, except where your ledger has negative balance.
9. How to avoid collateral liquidation?
Collateral would be liquidated (invoked) only when the ledger is in debit. So to avoid liquidation you need to add funds to your Upstox wallet and have a positive ledger balance.
10. How to view the charges levied?
The interest charges shall reflect in the client ledger. Additionally a separate report to view all the interest charged on cash shortage. The client can access such report on the following path: Reports ➡️Interest Charged ➡️Cash Shortage.