The pledge system
Before September 2020, brokers held power of attorney over client shares for margin. The SEBI circular of that year replaced it with the pledge: you pledge shares via your TPIN, they remain yours in the depository’s records, and the broker can use the pledge value as margin. Unpledge when the position closes.
What leverage does to losses
Margin multiplies exposure, not skill. A 10% adverse move on a 5x leveraged position wipes 50% of your capital. The broker auto-closes positions that run out of margin, usually at the worst moment. This is the mechanical reason leveraged trading is not a beginner’s game: the exchange’s risk rules do not wait for your thesis to work out.
Margin in plain investing
For delivery investors, margin barely exists except as the upfront margin the exchange requires before a buy order, which the broker collects from your balance. The word only becomes dangerous in intraday and F&O, where positions are taken on margin by default.
The peak margin system
SEBI phased in peak margin rules between December 2020 and September 2021: brokers must collect the full peak margin of a position upfront, calculated on the position’s maximum intraday exposure, not its end-of-day value. The rule ended the practice of collecting nothing upfront and demanding margin only if the position soured. For delivery investors the effect is invisible; for leveraged traders it means the true cost of a position is on the table before the order is placed.
Haircuts on pledged securities
When you pledge shares for margin, the broker credits the market value minus a haircut set by the exchange, typically 10% to 50% depending on the stock’s volatility and liquidity. A ₹1,00,000 holding in a volatile stock might count for ₹70,000 of margin. The haircut exists because the collateral itself can fall while the position is open. The pledge value updates daily, and a falling stock can shrink your available margin without any new trade.
A concrete example
You hold shares worth ₹1,00,000 and want to trade futures. You pledge the shares through the broker app using your TPIN. The pledge value (a haircut below market value) counts as margin. Your shares never leave your BO ID; the pledge simply appears in your statements.
Questions people ask about Margin
The exchange requires upfront margin on every buy order, which the broker collects from your balance automatically. Delivery orders are fully funded, so margin is a formality. Leverage only appears in intraday and F&O.
When a leveraged position moves against you and your margin falls short, the broker demands more margin and can auto-close the position to protect both sides. Margin calls are the moment leverage stops being theoretical.
Equity mutual fund units can be pledged under the same September 2020 pledge framework, subject to exchange eligibility and haircuts. Debt fund units generally are not eligible. The pledge route applies to whatever securities the exchange and depository accept, always at a haircut.
The broker closes the position itself once the margin buffer runs out, at market price, and the shortfall plus penalties land on you. Margin calls are the exchange’s risk system working as designed, and the only answer that avoids the forced close is more margin or a smaller position.
Ready to put the words to work?
The account costs ₹0 to open, and the first year of AMC is free.