leverage
Pledged is still collateral
The rule
Shares pledged for margin still show in your demat, but they are collateral now - a bad day can force their sale.
Where it flips
Seeing the shares in your own demat feels like they are safe and untouched. Where it misleads: you forget pledged holdings are collateral against a loan. The fix: keep any pledge small, and never fund a risky short-term trade with long-term holdings you cannot bear to lose.
After the 2020 reform, pledged shares stay in your own demat account, which makes them feel untouched. But once pledged they back borrowed margin, and if the market falls the broker can issue a margin call and sell them to cover the loan. The reader treats pledged long-term holdings as at risk, especially when the margin funds a short-term trade.
A worked example
A reader pledges ₹5,00,000 of long-term holdings to fund a trade. The shares still show in the demat, so it feels safe. A sharp fall triggers a margin call, and part of those holdings is sold at the worst time to cover it. [illustrative]
How to spot it
- ·long-term holdings pledged to raise margin
- ·borrowed margin used for a short-term trade
- ·comfort that the shares still appear in the demat
- ·no plan for a margin call in a falling market
Margin-pledge caution · The 2020 pledge reform and margin calls