Margin, Leverage & Pledging

After the lunch rush, Maya opens her trading app and sees a banner: five times her money for intraday. When she planned her restaurant in why the stock market exists, she turned down a bank loan, because it wanted fixed payments every month whatever her dining room did.

Margin is money, or shares, you put down as a deposit against a position. The position, also called exposure, is the full value you control: the number of shares times the price. The position decides the gain or the loss; the deposit only decides how big a position you may hold.

Take Maya's ₹10587.00: show the note on Why ₹10587.00 (made up) at Lodha's close of ₹1058.70: show the note on Lodha Developers · NSE: LODHA on Friday 16 October 2026. Paid in full, it buys 10 shares. With a margin loan, it can hold up to 37 shares, worth ₹39171.90. Intraday at five times, it can hold 50 shares, worth ₹52935.00, which must be closed the same day. The same money, three sizes of position (derived).

Margin comes in three forms. Intraday, often called MIS: the broker carries the rest only until the close (placing your first order shows the product box). MTF, the margin trading facility: India's regulated broker loan for buying shares to hold, with interest (chapter 4). A margin pledge: shares you already own, locked so they count as margin (chapter 5). Futures and sold options also run on margin; the Options course explains those.

Leverage is the word: show the note on Buying power for the multiple: exposure divided by your own money. 50 shares on ₹10587.00 is five times; 37 shares is 3.70 times.

In the US this is called buying on margin: the Federal Reserve's Regulation T lets you borrow up to half the price of a share. The words differ by country; the idea is the same.

Every day NSE Clearing, the clearing corporation that guarantees NSE's trades, publishes a margin file with one line per share. Lodha's line at the start of Friday 16 October 2026 read, in part: LODHA, EQ, … 16.14, 0.00, 16.14, 3.50, 0.00, 19.64. The last six numbers are percentages: the share's own VaR, the index's VaR, the VaR margin, the ELM, any extra (adhoc) margin, and the total that applies. The next two paragraphs explain the ones that matter.

VaR margin, 16.14%, comes from value at risk: the clearing corporation's estimate of a large one-day fall for this share, worked out from its recent swings. A calmer share has a smaller VaR. ELM, 3.50%, is the extreme loss margin, a fixed extra cushion for a fall bigger than VaR expects. The exchange's number: show the note on The order screen's margin, 19.64%, is the two added together.

For intraday, India's rule has a floor: in the cash market a broker must collect at least 20% of the trade's value up front. Lodha's 19.64% is lower, so 20% applies, and one divided by 20% is the five times in Maya's app (derived).

A margin loan asks more. For MTF on a share that also has futures, the rule is VaR plus three times ELM: 16.14 + 10.50 = 26.64%, and never less than 20%. So the biggest position a margin loan could hold on Lodha that day was 3.75 times the deposit (derived). Shares without futures: show the note on Lodha has futures need VaR plus five times ELM.

Brokers may ask more than these minimums, never less, and the rates move every day: Lodha's VaR margin was 16.04% to 16.14% that week. Since 1 December 2020, phased in until 1 September 2021, the clearing corporation also checks each client's margin at least four times a day at random moments, called peak margin; the deposit must be there at the highest one, not only at the close. In the first phase a client could still carry up to 20 times for intraday; from 1 September 2021, at most five times.

The rule is short: show the note on Every market: the move on your money equals the move on the share times the leverage, before charges.

A down day first, Friday 23 October 2026 (an illustration on real prices). Say Maya takes the app's offer at the open: 52 Lodha shares at ₹1003.10, ₹52161.20 of exposure on ₹10432.24 of margin (20%). By the day's low: show the note on Low and close, ₹941.00, the share was 6.19% down and her position ₹3229.20 down: 30.95% of her deposit. At the close, ₹963.00, the share was 4.00% down and her money 19.99% down (derived). Paid in full with the same money, the close would have cost her 4.00%.

Then an up day, Thursday 29 October 2026. The same 52 shares at the open, ₹1005.00; at the close, ₹1045.80, the share was 4.06% up and her deposit 20.30% up (derived). The same five times, the other way.

Where it ends: at five times, a 20% fall in the share takes the whole deposit. A gap or a fast fall can take more than the deposit, and the rest is a debt owed to the broker. FINRA, the US brokers' regulator, makes every firm say it plainly: "You can lose more funds than you deposit". The same arithmetic holds in India.

A forced exit is not a safety net. If she does not close an intraday position herself, the broker closes it near the end of the day (placing your first order), at whatever price there is; on a day a share is locked at its limit there may be no buyer at all (circuit limits and surveillance).

Her loss budget sees it first. In risk management 101 she allowed ₹1000 to be lost on one trade. On 23 October the intraday position passed that well before the day's low, where it stood ₹3229.20 down. Leverage changes how far a fall travels before her stop, not where her stop is.

Who lends. In India a margin trading facility may be offered only by a corporate broker with a net worth of at least ₹3 crore and the exchange's approval, only on Group I shares: show the note on Group I and equity ETFs (the most traded), and only with the client's written consent to its rights and obligations. SEBI, India's market regulator, proposed changes in June 2026 that were still under consultation on 30 October 2026.

How much. Maya's what-if, Friday 16 October (made up, on the real close): 37 shares at ₹1058.70 cost ₹39171.90. At 26.64%, the deposit needed is ₹10435.39; she puts in her ₹10587.00 and the broker lends ₹28584.90. That is 3.70 times her money; 38 shares would have needed ₹10717.43, more than she has (derived).

At what rate. One large broker publishes: show the note on One broker's rate 0.04% a day on the amount lent, from the day after purchase until the shares are sold: ₹11.43 a day on her loan, about ₹4173 over a year, 14.6% (derived). It is charged whether Lodha rises, falls or stands still. Rates and how days are counted are each broker's own; read yours.

Against what security: the shares themselves. The 37 shares arrive in her demat account pledged to the broker, in an account the rules call "Client Securities under Margin Funding Account", and the pledge must be released within one working day of her repaying.

The margin must hold every day: show the note on A higher rate. The same rate, 26.64% or whatever that day's is, applies to the lower of what she paid and what the shares are now worth, and any fall below her price comes off what counts as hers. Chapter 7 shows her week.

So is it the bank loan she refused? Partly. Both charge interest whatever happens, and both must be repaid. But the bank would have looked at her restaurant and her income and set monthly payments; the broker looks only at the share's price, every day, and can ask for more money within days, a margin call, or sell. In the US the same thing is a margin account: up to half the price borrowed at the start, and at least 25% of the value kept as equity (the value minus the loan) at all times, often 30 to 40% at firms.

Why a pledge, and not a handover: until 2020 many brokers took clients' shares into their own accounts for margin, and some misused them. In November 2019 Karvy Stock Broking was found to have pledged clients' shares to raise money for itself (SEBI and investor protection tells the case). Since SEBI's circular of 25 February 2020, in force from September 2020, a broker may take shares as margin only through a pledge in the depository.

The steps, on one line. In the app she picks the shares and the quantity to pledge. The depository (CDSL, for Maya): show the note on Depository sends a one-time password to her registered mobile or email, and she confirms. A lock is marked on those shares in her own demat account, in favour of the broker, who may re-pledge them to the clearing corporation. The margin appears in her account, at their value less a haircut, explained next. To end it she unpledges, or sells, and the lock is released. The permission that lets a broker act for her is the DDPI from opening a demat and trading account.

The haircut: the clearing corporation: show the note on Which price counts each pledged share at less than its price, in case it falls before it can be sold. For Lodha the haircut equals its VaR margin, about 16% that week. It is not a charge and not a loss; it is the part that does not count.

A worked example (made up, on real files): if Maya owned 10 Lodha shares outright and pledged them, the file for 16 October valued them at ₹10618.00 and gave ₹8904.25 of margin. After Friday 23 October's close, the file for 26 October valued them at ₹9630.00 and gave ₹8076.68. Her margin fell ₹827.57 without a single trade (derived).

What it is not: margin from pledged shares is not money she can withdraw, and a broker may value them at the lower of the last price and the previous close. If the haircut rises, the margin falls from the next day.

What stays the same: the shares are hers. Dividends, bonuses and splits arrive as usual. Pledging and unpledging carry a small charge at brokers, such as ₹15 plus GST per stock.

In one account: in Maya's MTF what-if, the 37 shares are both the purchase and the security for the loan. Every rupee Lodha falls takes ₹37 from her equity and lowers what the shares count for. The same is true when the shares you pledge and the shares you trade are alike, say two property developers: a bad day for one is often a bad day for both.

In a company's owners: Zee Entertainment, January 2019. Promoters, the founders or controlling owners, sometimes pledge their own shares to borrow. Zee's promoter group held about 41.6% of the company and had pledged about 59% of that. On Friday 25 January 2019, after a news report about the group, the share fell as low as ₹288.30 on NSE and closed at ₹318.40: show the note on Which close, 26.61% below the day before (derived); the company's management said lenders selling pledged shares was part of the fall. Two days later the group said it had reached an understanding with its lenders. Invoking a pledge means the lender sells the pledged shares to get its money back, at whatever price the market offers that day.

Worldwide: Archegos, March 2021. A private investment firm in New York grew from about $1.5 billion to more than $36 billion, with about $160 billion of positions, about 4.4 times its money (derived), through loans and contracts from banks. When some of its biggest shares fell, it could not meet the margin calls; the banks sold, and their losses ran into billions of dollars, by the SEC's account. Its founder was later convicted of fraud and sentenced to 18 years: the leverage was legal, the lies to his lenders were not.

Where pledges are on record: show the note on A pledge is not fraud: in India, promoters must report a pledge, its invocation or its release within seven working days, each quarter's shareholding pattern shows how many of their shares are pledged, and NSE lists them on its pledged-data page. On 30 September 2026 Lodha's promoters held 70.29% of the company and had pledged none. How to research a stock reads ownership as part of research; this is the line to check there.

Reading her statement: show the note on Daily margin statement (made up, on real closes and real rates): each evening the broker compares what she has that counts, the shares' value minus the loan, called her equity, with what is required, that day's rate on the lower of cost and value. On Friday 16 October she had ₹167.27 to spare.

Monday 19 October, Lodha ₹1030.00, 2.71% down on the day: equity ₹9525.10, required ₹10141.07, short ₹615.97. At the most the broker could lend, a fall of 0.58% was enough to bring a call (derived). Tuesday 20 October was a holiday on NSE.

Wednesday and Thursday, ₹1015.00 and then ₹1006.40: short ₹1012.02, then ₹1230.75.

Friday 23 October, ₹963.00, 4.31% down on the day: equity ₹7046.10, required ₹9488.54, short ₹2442.44. Her loss so far, ₹3540.90, is 33.45% of her money and three and a half times her loss budget of ₹1000; interest of about ₹57 is on top (derived).

What she could do on Monday: show the note on Intraday's own clock: add cash to cover the shortfall; pledge other shares, if they count for enough after the haircut; or sell some of the 37 shares and repay part of the loan. Each costs something.

What the broker may do if she does not: under NSE's rules, sell the shares on the terms she agreed to, "not exceeding 5 working days from the day of margin call", and its own terms can be quicker. One broker's published terms say it "may square off", that is close the position, when the account goes negative. In the US the firm can sell without contacting you, and you are not entitled to more time. A sale is at the market's price that moment, not her price, and if it does not cover the loan, the rest is still her debt.

The week after: Lodha closed at ₹1045.80 on Thursday 29 October, 1.22% below her price (derived). Had she been sold on Friday, the loss would have been fixed near the week's low. Nobody knew that on Friday, and nobody knows it next time: the point is that the loan, not she, decided how long she could wait.

Before switching on margin, MTF or a pledge, write five lines for your own trade. For Maya's what-if: what I would control, ₹39171.90 (37 shares); what I would owe, ₹28584.90 at 0.04% a day (₹11.43); the fall that brings a call, 0.58%, to ₹1052.54; the fall that takes all my money, 27.03%, to ₹772.56; who may sell, and by when: the broker, within 5 working days of a call, or sooner under its terms.

Where to find each: the broker's MTF terms and its rights and obligations document: show the note on Rights and obligations, which every client must be given; its risk policy; the margin shown on the order screen; and, in the US, the margin disclosure statement every firm must hand over. If a line cannot be filled from the written terms, that is your answer for now: not yet.

Maya's rule (hers, made up): "While I am learning, I trade only with money I have. If I ever use a loan, I will size it so that the fall that brings a call is bigger than my stop, and the loss at my stop is still ₹1000." Yours should fit your money and your nerves; what matters is that it is written before the offer is on the screen.

Her answer to her own question: yes, borrowing to trade is a loan, like the one she refused. It is quicker to take, quicker to call, and secured by the very shares it buys. Even on paper, she noticed she wanted to add money and wait for the bounce; trading psychology takes that feeling next.