Margin, Leverage and Pledging

Say Mr. Chartist has ₹52,700 to trade with. If he buys ITC for delivery and pays in full at the 16 Oct close of ₹263.50, that money buys 200 shares (₹52,700 ÷ ₹263.50; 200 is an illustration on the real price). Sahi calls this CNC. Its FAQ says plainly that it gives no leverage on delivery: the full purchase amount is needed.

If he trades intraday instead (Sahi calls this MIS), the same ₹52,700 can hold up to 1,000 ITC shares, worth ₹2,63,500 (derived). The ₹52,700 is the margin: a deposit that sits against the trade. The ₹2,63,500 is the exposure: the amount whose price move hits his account. Leverage is exposure divided by margin, here 5x (derived).

The other ₹2,10,800 of exposure is not cash he has. It is exposure he controls. Sahi's own FAQ puts it simply: ₹100 of delivery needs ₹100, while intraday may need about ₹20.

Profit and loss follow the full quantity, not the deposit. If ITC falls ₹2.70, 1,000 shares lose ₹2,700, whatever margin was posted. A smaller deposit never shrinks the obligation. Futures and sold (written) options also need margin; an option buyer pays the full premium instead. These are different payment shapes, not different ways to buy the same shares.

Every trading day NSE Clearing publishes a margin file for each stock. In the file for 19 October 2026, ITC's row shows a security VaR of about 8.48%, a VaR margin of 9.00%, an extreme loss margin (ELM) of 3.50%, no adhoc margin, and an applicable margin rate of 12.50%. The rates were the same on 16 and 21 October.

VaR (value at risk) margin covers a large one-day move worked out from the stock's recent price swings. NSE's rule for the most liquid stocks, called Group I, is six times the stock's daily volatility, with a floor of 9%. ITC's own figure, 8.48%, is below that floor, so it is lifted to 9.00%. ELM is a fixed extra buffer of 3.5% for any stock. 9.00% + 3.50% = 12.50%.

In the cash market, brokers must also collect at least 20% upfront from the client in place of VaR and ELM, as NSE's member FAQ explains. So for an ITC intraday trade the margin is the higher of 12.50% and 20%: 20%. One divided by 20% gives the 5x maximum (derived). Sahi's risk policy states the same ceiling: an intraday limit of 5x when VaR is 20%.

Futures and options use a different model. SPAN (Standard Portfolio Analysis of Risk) tests a set of price and volatility scenarios across the whole portfolio, and exposure margin is added on top. ITC is an F&O stock with a lot size of 1,725 shares for the October to December 2026 contracts. Hedges can lower SPAN, and closing one leg can remove that benefit. None of these numbers forecasts tomorrow's price or caps your possible loss.

Three checks happen at different times. Before the order, is there enough margin? While the position is open, is there still enough? At settlement, is the cash or the shares actually there? Passing the first check says nothing about the other two.

Picture Mr. Chartist's daily margin statement, the one brokers must send their clients (an illustration, not a real Sahi statement). Funds: ₹60,000 (an illustration). Upfront margin for ITC MIS, 1,000 shares at ₹263.50: ₹52,700. Excess: ₹7,300 (derived).

By the 19 Oct close the position shows a mark-to-market loss of ₹2,700 (derived). The loss is added to what is required, so the excess drops to ₹4,600 (derived). The margin is still blocked; the loss comes on top of it.

Clearing corporations also check client margins several times during the day, at random moments. This is called peak margin. The full upfront margin must be in place at each check, so a balance that looked fine at 9:30 is not a promise for the rest of the day. Before changing quantity or removing a hedge, refresh the margin figure on the order screen; it can change before you tap.

Take 1,000 ITC shares bought at the 16 Oct close of ₹263.50 (1,000 is an illustration on the real price). Exposure is ₹2,63,500. Margin at 20% is ₹52,700. Leverage is 5x. All derived.

Now walk through the real prices of 19 October, before charges. At the day's high of ₹263.90 the position is up ₹400 (+0.15% of exposure, +0.76% of margin). At the open of ₹262.70 it is down ₹800. At the low of ₹259.95 it is down ₹3,550 (−1.35% of exposure, −6.74% of margin). At the close of ₹260.80 it is down ₹2,700 (−1.02% of exposure, −5.12% of margin). All derived.

Each move hits the margin five times as hard as it hits the stock. That works both ways: the ₹400 gain at the high is also five times bigger on your money. Leverage does not pick a side; it makes both bigger.

At 5x, a fall of 20% wipes out the whole margin. For ITC from ₹263.50 that is a price of ₹210.80 (derived), a level ITC has not traded at in the past year. A smaller fall can still trigger a margin shortfall or a forced exit long before that. This simple sum only holds for a fixed, unhedged share position; options, hedges and changing margins do not follow one formula.

India's Margin Trading Facility (MTF) is a regulated loan from a broker for buying shares to hold. Only Group I equity shares and equity ETFs qualify. Under SEBI's framework, only corporate brokers with a net worth of at least ₹3 crore, and with the exchange's prior approval, may offer it. The funded shares are held as collateral by pledge, and both the collateral and the funded shares are marked to market every day.

How much must you put in? NSE's MTF FAQ sets the initial margin for a Group I F&O stock at VaR + 3 × ELM. For ITC on 19 October that is 9% + 3 × 3.5% = 19.5% (derived). On 1,000 shares at ₹263.50 (₹2,63,500), you put in ₹51,382.50 and the broker lends ₹2,12,117.50 (derived). The position is about 5.13 times your own money.

The loan costs interest. As a teaching assumption only, take 15% a year, simple interest, on a 365-day year, for 90 days: ₹2,12,117.50 × 15% × 90 ÷ 365 = about ₹7,845.44 (derived). For 30 days it is about ₹2,615.15, and for 180 days about ₹15,690.88. This is not any broker's rate; real terms set the rate, how it is charged and any compounding.

The loan does not shrink when the price falls. If ITC is flat for 90 days, the interest alone still eats into your equity. If ITC falls, you may be asked for more margin, and the broker can sell under its written terms. The exchange's investor protection fund does not cover MTF losses.

Sahi publishes no MTF product: its FAQ and risk policy do not offer one, and its delivery (CNC) trades need the full amount. If a broker offers MTF, read its written terms before you consent.

A margin pledge puts a lock on shares inside your own demat account. The shares stay yours, but they now stand as security for your trading. Since 1 September 2020, brokers in India can take shares as margin only this way. You confirm each pledge with an OTP sent straight from the depository (CDSL or NSDL). At Sahi the CDSL OTP is valid for 20 minutes, and the broker then re-pledges the shares to NSE Clearing.

A haircut is a cut taken off the value. NSE Clearing's approved-securities file sets ITC's haircut at 9%, the same as its VaR margin. Say Mr. Chartist pledges 1,000 ITC shares (an illustration). At the 16 Oct close of ₹263.50 they are worth ₹2,63,500 and give ₹2,39,785 of margin. At the 19 Oct close of ₹260.80 they are worth ₹2,60,800 and give ₹2,37,328. In one day his margin fell by ₹2,457 without a single trade (all derived).

The 9% cut is not money taken from you, and it is not a loss on the shares. It is a safety gap the clearing corporation keeps in case the price falls before the shares can be sold. A broker may apply a higher haircut of its own. Sahi values pledged shares at the lower of the last price and the previous close, less its haircut; its own FAQ example is ₹1,000 at a 20% haircut giving ₹800. Shares with a 100% VaR margin cannot be pledged at all.

Pledging is not free. Sahi charges ₹15 plus GST per stock (per ISIN) for each pledge and each unpledge, caps collateral margin at ₹50 lakh per user, and lets you pledge shares bought today only after T+1. Dividends and bonus shares still come to you. If you default, the broker can invoke the pledge, which means the shares are taken to settle what you owe.

At Sahi you can sell pledged shares in market hours without a separate release step: they are unpledged automatically, with the unpledge charge. Its FAQ says you cannot unpledge without selling. Since 5 September 2025, under SEBI's circular of 3 June 2025, a sale of pledged shares is handled by one depository instruction, 'pledge release for early pay-in'. Other brokers may run a different release route, so check yours.

Keep three things apart: cash, cash-like collateral (such as Liquid BeES or Sovereign Gold Bonds marked as cash collateral), and pledged shares. Margin from pledged shares is not money you can withdraw, and it cannot pay an option premium, a settled loss or a fee.

For overnight F&O positions, Sahi requires at least 50% of the margin in cash or cash-like collateral; it says this follows exchange rules. The other half can be pledged shares. Intraday positions can use 100% collateral.

Sahi's own FAQ example: an overnight position needs ₹2,00,000 of margin, so ₹1,00,000 must be cash. With only ₹60,000 in cash, there is a ₹40,000 cash shortfall, even if pledged shares cover the rest. Sahi then charges a delayed payment charge of about ₹20 a day on that shortfall.

Sahi's FAQ gives that charge as 0.05% a day including GST (about 18% a year); its risk policy states 0.045% a day. Check the current tariff. Collateral margin at Sahi can be used for intraday trades, futures and option writing, but not for buying options or for delivery (CNC) purchases. A large collateral balance does not settle a cash debit by itself.

Pledged shares and the trade they support are two separate risks. Pledging does not stop the pledged shares from moving. On a bad day both can fall at once: your support shrinks while your loss grows.

19 October 2026 was such a day. Say Mr. Chartist has 100 HDFC Bank shares pledged (an illustration) and holds the 1,000-share ITC intraday position from Chapter 4. HDFC Bank closed at ₹728.85 on 16 October and ₹712.00 on 19 October. After the 9% haircut his pledged support fell from ₹66,325.35 to ₹64,792.00, down ₹1,533.35 (derived).

On the same day the ITC position lost ₹2,700 at the close (derived). Together, his headroom shrank by ₹4,233.35 in one day (derived). Neither move was dramatic; both stocks simply fell together.

This will not happen in every account on every day. It shows why a pledge is not a fixed cushion. If the shares you pledge and the trades you take are likely to fall together, the pressure doubles.

A margin shortfall is the gap between what is required and what you have that counts. It can come from a loss, a bigger haircut, a higher margin rate, a closed hedge, a withdrawn share or an unpaid bill. A price loss is only one of the causes.

Sahi's risk policy says it may start squaring off positions once the mark-to-market loss reaches 80% of your total deposit (ledger cash plus pledged holdings after haircut), on a best-effort basis. With a deposit of ₹52,700 (an illustration), 80% is ₹42,160. On the 1,000-share ITC position that would need ITC near ₹221.34 (derived). The 19 Oct close loss of ₹2,700 was about 5% of that deposit.

Sahi's policy also sets a timeline for unpaid debits. If a debit is still unpaid on T+4 (four trading days after the trade day), pledged shares may be sold from T+5. A day can be a holiday: 20 October 2026 was an NSE holiday for Dussehra, so it does not count.

You can respond by adding funds, cutting the position or another step the rules allow. Pledging more shares may not fix a cash shortfall. Cutting one leg of a hedge can raise the margin on what is left, so recalculate first.

Do not count on a phone call or a grace period. A forced exit can be partial, late or fail, and any debit left after it is still yours to pay. 'Best effort' is not a promise to limit your loss.

Intraday (MIS) positions must be closed the same day. If you do not close them, the broker tries to close them for you near the end of the session. This is an auto square-off: an attempt to place the opposite trade. It is not a fixed sale price, and it is not insurance.

Sahi's risk policy says MIS positions are squared off on a timer before the market closes, and fresh MIS orders are blocked one minute before that. The exact times can change, so check them in the app for the instrument and the day.

The attempt can fall short. Picture the 1,000-share sell order filling only 600 shares because the buyers run out, as they do when a stock is locked at its price band (quantities are an illustration; ITC itself, an F&O stock, has no daily price band). Sahi's policy says an MIS position that could not be squared off, for example at a circuit, becomes a carry-forward position at the client's risk. Then overnight margin and delivery rules apply.

After any auto square-off, check the filled quantity and what is still open. A message that the process started is not a full fill. Know your exit and conversion path before you enter, and what you will do if the app cannot complete it.

Liquidity means someone is ready to trade the other side, in enough quantity. A price on the screen, or a stop that has triggered, does not mean your whole order can trade at that price.

Stocks have price bands, limits on how far they can move in a day. Trades still happen inside a band if there are buyers and sellers. But if a stock is locked at its lower band with sellers and no buyers, you may not be able to sell at all. At the upper band, a short seller may not be able to buy back. What counts is the live order book.

A stop can trigger and its order can still sit unfilled. A stop-limit order waits for its limit price; a stop-market order can fill well away from the trigger. Neither the trigger nor the broker's forced exit guarantees a price.

Even an ordinary day moves faster than a reaction. On 19 October 2026, ITC went from its open of ₹262.70 to its low of ₹259.95. On 1,000 shares that is ₹2,750 lost (derived) before most people would act. With leverage, a gap or a locked band can push the loss past the whole margin, and the extra is still owed.

Hold the money fixed at ₹52,700 and the entry price fixed at ITC's 16 Oct close of ₹263.50. One way buys 200 shares, fully paid. The other takes 1,000 shares intraday at 5x. Both quantities are illustrations on the real prices.

At the 19 Oct prices, before charges, the fully paid 200 shares were up ₹80 at the high, down ₹160 at the open, down ₹710 at the low and down ₹540 at the close. The 1,000 shares at 5x were up ₹400, down ₹800, down ₹3,550 and down ₹2,700. All derived.

At the close that is −1.02% of your money paid in full, against −5.12% at 5x (derived). Same stock, same day, same money: five times the loss, only because the quantity was five times larger.

A fully paid holding carries price risk, but a falling price does not create a loan or a margin call. The leveraged position adds a same-day exit, margin checks and, for MTF, interest and repayment. Taxes and charges are left out of both sums. Borrowing does not make the investment any better; it only makes the outcome bigger.

Start by naming the product: fully paid delivery (CNC), intraday (MIS), futures or options, or a funded purchase (MTF). Product names differ between brokers, so read each one's definition.

Write the numbers down, using the ITC example as a model. Product: MIS. Quantity: 1,000. Exposure: ₹2,63,500. Margin: ₹52,700. A bad day: −₹2,700 at the 19 Oct close, −₹3,550 at the low. If funded: the loan amount, the interest rate and how it is charged. If pledged: the haircut (9% for ITC at NSE Clearing) and how release works (at Sahi, a sale unpledges automatically).

Then read the rules that bite later: margin changes, expiry and delivery, exit limits, the shortfall timeline, the square-off rules and every charge. Check what happens if a hedge is removed or a forced exit fails. The margin estimate on the order screen is only one part of the picture.

Mr. Chartist can learn all of this arithmetic without switching leverage on. A practice run is only useful if it includes charges, interest and exits that fail, not just the exits you hoped for.

Prices and margin rates here are real and sourced; quantities and the MTF interest rate are illustrations. Your own account's terms and the current exchange rules decide what actually applies. Next, learn position sizing and risk management before taking on any obligation you could not comfortably pay.