1. What is considered a "haircut" in the case of pledging of ETFs for margin?

Haircut refers to the percentage reduction in the market value of securities, such as ETFs, if pledged as collateral for margin. The concept of this reduction is to account for the volatility and risk of the security, which would imply that the margin traders will get less than the 100% market value of their pledged ETFs. For example, assume that your ETFs are worth Rs 1,00,000, and a 20% haircut is applied; the broker may only lend against Rs 80,000.

2. Are all ETFs pledgeable for margin on Dhan?

No, not all ETFs are pledgable. Only approved ETFs are available for pledge margin benefit on Dhan. The eligible ETFs are decided by Dhan along with exchanges, and hence it is important to check the approved ETFs list before pledging a particular ETF.

3. What if the value of the pledged ETFs starts falling sharply?

If the price of the pledged ETFs falls below a prescribed level, called the maintenance margin, then the broker will declare a "margin call". This requires the trader to add more funds or pledge additional securities in order for their account to be put back at the necessary level. If they cannot meet a margin call, then brokers may sell some or all of the pledged ETFs, often without consulting, to cover the shortfall.

4. What are the pledging charges for ETFs on Dhan?

Yes, Dhan charges a certain nominal fee for pledging shares. The charge is Rs 15 per request per ISIN plus GST. These charges are part of the overall cost of using margin benefits.

5. What is the minimum cash requirement using pledged ETFs for F&O trading in India?

The Indian exchange regulations, however, require that 50% of the margin for F&O positions should be in cash or cash-equivalent collateral, and the remaining 50% can be in non-cash collateral like pledged ETFs.

How to pledge ETFs for margin: Rules, benefits, and risks explained

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Margin Trading

How to pledge ETFs for margin: Rules, benefits, and risks explained

Margin Trading

How to pledge ETFs for margin: Rules, benefits, and risks explained

Boost trading power without selling your ETFs. Learn how pledging ETFs on Dhan works, its benefits, risks, and steps traders must know before using margin.