Margin Pledge is a facility that allows you to use your existing Holdings - Stocks, SGBs, Mutual Funds, and ETFs as collateral to borrow funds (margin) for trading in Equity Delivery, Intraday, Futures, and Options. In this article, you will learn how to pledge/unpledge your Stocks on Upstox, what is pledge value, and other key details regarding Margin Pledge.

1. How to use Margin Pledge on Upstox?

Here’s a step-by-step guide on how to use Margin Pledge from the Upstox Desktop and Mobile App:

• Desktop: How to Pledge shares(On Desktop)?
• Mobile App: How to pledge shares(via Mobile application)?

2. How is pledge value determined on Upstox?

• The pledge value is calculated based on the closing price of the previous trading session
• Multiply the quantity of shares you wish to pledge by the closing price to obtain the Gross Pledge Amount
• Next, deduct a percentage, known as the "haircut," from this Gross Pledge Amount
• The resulting amount after the deduction represents the Net Pledge Amount, which signifies the funds available for trading

For example: If you pledge 100 shares of a company with a closing price of ₹100 per share and 20% haircut,your gross pledge amount is ₹10,000 and net pledge amount is ₹8,000.

3. What is Haircut?

Because market conditions are constantly changing and to protect brokers from the potential risk of losses, SEBI advises brokers to impose a haircut on Margin Pledge.

• This haircut acts as a buffer against market fluctuations by reducing the value of pledged assets. It helps ensure that brokers can cover any potential losses that may arise due to changes in market prices.

• Each pledged Stock may have a different haircut percentage.

• Upstox decides the haircut percentage based on different factors like Value at Risk (VAR), market condition etc and may apply a higher haircut percentage than prescribed by the exchange.
  Let's say you decide to pledge 100 shares of ABC Ltd with a previous day closing price of ₹100 per share. Now, if ABC Ltd has a haircut of 20%:

  
  

Gross Pledge Amount:

Number of shares × Closing price per share = 100 shares × ₹100 = ₹10,000

Haircut:

Haircut percentage × Gross Pledge Amount = 20% × ₹10,000 = ₹2,000

Pledge Value:

Gross Pledge Amount - Haircut = ₹10,000 - ₹2,000 = ₹8,000

4. What are the permitted uses of Margin Pledge on Upstox?

Upstox allows you to avail margin via Margin Pledge to trade in the following products:

• Buying / Selling Futures
• Buying / Selling Options
• Buying / Selling Equity Intraday
• Buying Equity Delivery

5. How to unpledge Stocks, ETFs, mutual funds,and SGBs on Upstox?

Follow this step-by-step guide to understand the unpledging process on Upstox:
https: How to unpledge the pledge shares?

6. What are the charges for pledging / unpledging on Upstox?

PLEDGING / UNPLEDGING CHARGES:

₹20 + GST is charged for every pledge and every unpledge request.

Example for a pledge request:
Suppose you want to pledge 100 shares of ABC Ltd. and 50 shares of XYZ Ltd. You will be charged ₹40 + GST for 2 requests, irrespective of the number of shares in each request.

Example for an unpledge request:

Condition 1:

If you pledge 50 shares of XYZ Ltd. in two separate requests and later place a single unpledge request for 100 shares, you’ll be charged ₹40 + GST. This is because, at the depository level, the unpledging will also be processed in two parts, just like the initial pledge.

Condition 2:

If you pledge 100 shares of XYZ Ltd. in a single request and later place two separate unpledge requests—one for 50 shares of XYZ Ltd. and another for 20 shares of ABC Ltd.—you’ll be charged ₹40 + GST for two unpledge requests since each request is processed separately.

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.

CHARGES DUE TO CASH SHORTAGE

You need to maintain 50% funds as cash and the remaining 50% can be availed via Margin Pledge for your requirement. When your cash component goes below 50%, it is considered a ‘cash shortage’. An interest rate of 0.05% per day is charged for the shortage amount.

Example: You have a futures position with a margin requirement of ₹1,10,000. Your Upstox fund balance (ledger) is ₹20,000, and the value of shares pledged with Upstox is ₹1,00,000. Since your cash balance is less than 50% of the margin requirement (i.e., ₹55,000), an interest will be charged at a rate of 0.05% on the shortfall amount of ₹35,000. (50% of ₹1,10,000 = ₹55,000, available ledger balance is ₹20,000, hence the shortfall amount is ₹55,000 - ₹20,000 = ₹35,000).

INVOCATION CHARGES

In case the stocks, SGBs, mutual funds, and ETFs marked as Margin Pledge are required to be liquidated by Upstox (for reasons mentioned below), it is termed ‘Invocation’. The Invocation charges would be ₹50 + GST for every invocation along with the statutory charges.

• If there's a negative ledger balance, pledged Stocks can be liquidated by Upstox. Exposure upto 100% of the Margin Pledge value (Post Haircut and adjusting the negative ledger balance) may be permitted up to five days after the transaction or to the extent as may be permitted by regulations. 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.

• If the mark-to-market (MTM) loss breaches 70% of the available exposure value, existing positions will be squared off. Any recoverable amount will be squared off after T+1, with Margin Pledge benefits paused until the debit is cleared.

Note: Positions or collateral will be squared off at the existing market price, and any resulting loss will be the client's responsibility. All other Risk Management System (RMS) rules remain in effect.

7. What is Exposure in Pledge?

Exposure refers to the amount available for trading, which is up to 100% of the collateral value after deducting the haircut and any negative cash balance.

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 Upstox ledger is negative. In order to avoid liquidation you need to add funds in your Upstox wallet and always maintain a positive ledger balance.

10. How shall the shares be delivered which would be purchased using margin pledge?

Equity shares purchased under the delivery product type are required to be purchased by providing cash balance. Purchasing shares using margin pledge is an additional feature offered to the users. When shares are purchased using Margin pledge, the purchased shares are pledged in the CUSPA (Client Unpaid Shares Pledge Account) of the broker. Shares equivalent to 150% of the debit balance in the user wallet are pledged in the CUSPA.

Users can take the delivery of such shares by clearing the debit value in their wallet within 5 days from the Trade date post which the shares in the CUSPA account shall be invoked and liquidated to recover such debit balance.

11. How to view the charges levied?

To view any Margin Pledge charges levied and the interest charged due to cash shortage, please check the ledger report by going to Account➡️ Reports ➡️Interest Charged ➡️Cash Shortage.