Margin Pledge: Your ROI Booster!4 min read
Have you ever found yourself in a situation where you have an attractive trading opportunity but a limited cash balance in your trading account? Well, there is a solution – pledge your securities lying in your portfolio to the broker in return for collateral margin, similar to how we take loans against gold from banks to meet our short-term needs.
When you pledge your gold jewelry worth Rs. 2 lakhs with the bank, you get a loan amount that is less than your gold amount, say 80% (Rs. 1,60,000). The margin pledge also works similarly. Stocks that are in your demat account can be pledged with the broker and take up to 90% of the collateral loan. The best part is that, as the owner of the stocks, you will get all the benefits of corporate actions, even those stocks pledged to the broker.
At Paytm Money, we make the margin pledge easy for you. All you have to do is go to the portfolio section on the app and click on the Margin Pledge icon. You can pledge stocks that are allowed under Margin Pledge, and the received margin can be used for intraday trading, futures trading, selling options, and generating rental income against the portfolio.
How can I pledge my stocks?
- Go to the Portfolio section of the Paytm Money App and tap the Margin Pledge icon, as shown in the image.
- Learn about the Paytm Money Margin Pledge process and features.
- Pledge stocks which are allowed under Margin Pledge. Some stocks may not be accepted as per exchange guidelines. Here is the List of stocks allowed for Margin pledge.
Benefits of the Margin Pledge!
The margin received from pledging can be used for
- Intraday Trading in Cash segment
- Trading in Futures for Intraday and Carry Forward
- Selling Options for Intraday and Carry Forward
Paytm Money allows you to use 100% collateral for intraday and carryforward trades, eliminating the need to maintain a cash margin. However, as per the rule, 50% of the margin needs to be funded by cash for carryforward trades. If users consume more than 50% of collateral funds, then the outstanding balance will be charged 1.5% per month in interest.
This will help you use the funds for trading purposes, which will help you take advantage of attractive trading opportunities and generate additional returns.
Generate rental income through option selling!
The collateral margin received from Paytm Money can be used to take advantage of attractive trading opportunities and generate additional returns. Covered call is the most popular strategy traded using collateral margin. This strategy involves OTM call option selling and generating rental income against the portfolio. Know more about covered call strategy here.
As the owner of the stocks, you are entitled to receive all the benefits of corporate actions, including dividends, bonuses, and other similar benefits, even if the stocks are pledged to the broker.
But what if you’re a trader who avoids risk?
If someone expects a fixed return on their capital and also wants to trade, they can use the Nippon LiquidBees ETF; provides higher returns than bank FDs and a 92% collateral margin through pledging. Typically used to supplement income from short-term trading such as option selling and swing trading,
Is there a cost to the margin pledge?
Indeed, all desirable things often come with a cost. Your broker wants to cover the cost. Paytm Money charges Rs. 15+GST for pledge and same for un-pledge request.
There is a cost involved in Margin Pledge. Paytm Money charges Rs. 15+GST for pledge and un-pledge requests.
In conclusion, while margin pledge can be a useful tool for traders looking to increase their trading volume and potentially earn extra income, traders should be aware of the risks involved in trading equity & derivatives, including the possibility of significant losses. They should also be mindful of the interest rates and fees associated with the margin pledge, as these can impact their overall returns.
Despite these risks, margin pledge can be a useful tool for traders looking to increase their trading volume and potentially earn extra income. By pledging their existing securities as collateral, traders can access additional funds to trade in the derivatives segment, potentially increasing their returns on investment.
Click here to access the margin pledge feature!
Disclaimer: Investments in the securities market are subject to market risks, read all the related documents carefully before investing. The securities are quoted as an example and not as a recommendation. This content is purely for information purpose only and in no way to be considered as an advice or recommendation. Paytm Money Ltd SEBI Reg No. Broking – INZ000240532. NSE (90165), BSE(6707) Regd Office: 136, 1st Floor, Devika Tower, Nehru Place, Delhi – 110019. For complete Terms & Conditions and Disclaimers visit: https://www.paytmmoney.com/stocks/policies/terms
Author: Peter Cutinho