Definition
Pledge and Margin Funding
Pledging shares for margin lets investors borrow against their holdings to trade, while margin funding is broker-provided credit to buy more stock.
You can pledge the shares in your demat account to get trading margin (collateral), borrowing against your portfolio without selling it. Margin Trading Facility (MTF) is broker-provided funding to buy stocks beyond your cash, with the bought shares pledged as security.
SEBI mandates a transparent pledge-repledge system (with OTP confirmation to the depository) to protect investors after past misuse of client securities. Leverage amplifies returns but also risk, a sharp fall can trigger forced selling of pledged shares to cover dues.
Related terms
- Promoter PledgingPromoter pledging is when promoters use their shares as collateral to raise loans, a practice that can signal financial stress.
- Margin (Trading)Margin is the collateral a trader must deposit to cover potential losses on a position, comprising components such as SPAN, exposure and mark-to-market margin in the Indian derivatives market.
- Mark to Market (MTM)Mark to market is the daily revaluation of open positions at current prices, with gains credited and losses debited from your account each day.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.