How do i Mark any Stock as Collateral?

One of the big advantages of margin trading is that you can pay your margin either in cash or by offering stock as collateral. One of the advantages of pledging shares as collateral is that you don’t have to commit your cash capital and at the same time you also can indirectly monetize your Demat holdings sitting idle. In other words, by offering stocks as collateral, you improve the ROI or return on investment on your stock holdings.

Here we shall see the features of stock as collateral and also the advantages of using this system through your broker. We also look at what is the process for pledging shares as collateral from your Demat account. Remember, it is an extremely simple, seamless, and effortless process. Here is a detailed look at the pledge of shares as collateral security to get higher leverage.

Mark any Stock as Collateral

When you offer a pledge of shares as collateral security, you are effectively making your stocks work harder. The stocks sitting idle in your Demat account help you to better capitalize on the trading opportunities thrown up in the market and also enhances your ability to enhance your return on investment. That is stock as collateral is so important. Let us first look at some of the features of pledging shares as the collateral facility.

• The pledging shares as collateral facility allows you to unlock the value of your stocks, or rather the value embedded in the market value of your holdings. You can do that without having to sell the shares and worrying about transaction costs and tax implications.

• By using shares as collateral, you are not constrained by the availability of funds and liquidity, nor do you have to worry about alternate uses of funds. You can leverage the value of your equity holdings, subject to a haircut, and that value can be used to trade and grab smart trading opportunities in the market.

• The pledging shares as collateral facility allows you to create a trading limit by holding your existing stocks in the Demat account. You can either use this facility for trading in a cash margin account or you can also use the collateral value of the equity holdings to trade in the Futures and Options segment.

• This is a great way of bridging short-term funds requirements. Let us assume that you spot a smart trading opportunity in stocks in the F&O segment but currently don't have the funds to place the order. You don’t have to hesitate. Just create a limit by pledging shares as collateral. Then you can bring in the funds by T+1 day. It is that simple.

There are a few very important points you need to remember here. When you are pledging shares as collateral it is a zero-cost kind of short leverage for you. At the same time, you are leveraging the value of your stocks to get a higher purchasing power. This is a very useful attribute in a sharp bull market were even in regular conditions, your ability to take bigger and larger positions continues to grow. Above all, just because you pledged the shares, that does not stop you from selling the stock if the need arises. You can place the sell order for the blocked shares online. It is as simple as that.

Steps to pledging shares as collateral

There is a small and quick process that you need to go through before you can pledge and leverage the value of shares in Demat as Dematteral for taking positions in cash-margin positions or future and options positions. Let us look at the process flow for pledging shares as collateral.

1. The simplest way to create a pledge on shares is to use one of the digital platforms offered. This digital platform can either be an online trading account using a PC or laptop. Alternatively, you can also use the digital platform by using the mobile app facility. You can use either of these online digital facilities to create a pledge based on your stocks held in Demat.

2. In both the digital platforms, you need to go into the Demat balance and select the specific stocks that you want to offer a pledge. The system will only mark a pledge on these particular shares and offer you the limit accordingly. You can choose to pledge all the shares of a particular stock available in Demat or only part of the shares. Remember, the pledge is not allowed in T2T shares unless there is clear credit in the Demat account.

3. Remember, you have only initiated the pledge request on the online web portal. You still need to authenticate the same. For that the depository i.e., NSDL or CDSL will send you a clickable link either by email or SMS. This link will only be sent to the email / mobile phone number registered with the depository. Hence updating is a must.

4. Once you click on the link, you will be asked by the depository to authenticate your identity and ownership by entering your PAN and Demat account number. You need to go through the details available on the link and then click on OK so that a one-time password (OTP) is generated.

5. This OTP is sent to your registered email id and also to your registered mobile number. You can just input the OTP number in the space provided and the process of pledge authentication and confirmation is complete at your end. The entire process takes just about 10-12 minutes if all the other data is already in place.

6. Once you have completed the authentication at your end, the depository i.e., NSDL or CDSL will activate your pledge limits within 2-3 hours. You are ready to trade on margin or in F&O using your cash market holdings as collateral.

The process is quite simple and smart and it is entirely menu-driven and digital. You can complete the process in a few minutes and within a couple of hours, you can get the limits required activated on your trading account. It is as simple as that.

Benefits of Pledging Shares

Some of the key benefits of pledging shares as collateral can be summarized as under.

• There is no cost for marking your stock as collateral so any short-term funding gaps can be arranged through this method at zero cost.

• It offers higher leverage at almost zero cost and you don’t miss out on trading opportunities due to a shortage of funds.

• You can enhance your buying power and grab trading opportunities by simply leveraging your stock holdings and not worrying about arranging funds.

• A big advantage is that even pledged, your shares can still be sold.

What is Collateral Sell?

Collateral Sell facility is a facility wherein the client who has pledged shares online for limits, can sell the same securities online. This is true even if they have placed these shares as collateral hold for availing trading limits. Of course, trading limits will be adjusted accordingly