Margin Pledge Explained: How Pledging Your Shares Works
Published 2026-10-16 · Aadarna Stock Broking Pvt. Ltd.
Key takeaways
- A margin pledge lets you use shares you already own as collateral for margin, while they stay in your demat account.
- You authorise every pledge yourself with an OTP from the depository.
- A haircut means you get margin for less than the full market value of the pledged shares.
- If your margin falls short, the broker can sell pledged shares to recover the shortfall.
Traders often need margin to take positions in futures, options or intraday trades. Instead of adding fresh cash, you can use shares you already hold as collateral. This is called a margin pledge.
Since September 1, 2020, stock brokers can accept securities as margin from clients only by way of pledge in the depository system. This guide explains how that works and the risks you need to understand.
What is a margin pledge?
When you pledge shares, they stay in your demat account and remain yours. You still receive dividends and other corporate benefits. But they are marked as pledged in favour of your broker, so you cannot sell or transfer them freely until you remove the pledge.
In return, the broker gives you collateral margin that you can use for trading, according to its rules.
How you create a pledge
- Choose the holdings and the quantity you want to pledge in your broker's app.
- Submit the pledge request.
- You receive a link or an OTP from the depository (CDSL or NSDL) on your registered mobile number and email.
- Authorise the pledge using that OTP. Without your authorisation, no pledge is created.
- Once confirmed, the collateral margin appears in your account.
This is why your own mobile number and email must be registered with your broker and depository. Never share the pledge OTP with anyone.
What is a haircut?
You do not get margin equal to the full market value of pledged shares. The exchange and broker apply a haircut, a reduction that protects against falls in the share price. More volatile shares usually have bigger haircuts, and some shares may not be accepted as collateral at all.
For example, say you pledge shares worth ₹1,00,000 and the haircut on them is 20%. You would get collateral margin of about ₹80,000. Haircuts change with market conditions, so the margin you get can change too.
The real risk: margin shortfall
If the value of your pledged shares falls, or your trading losses grow, your available margin can fall below what is required. This is a margin shortfall.
When that happens, you may be asked to add money quickly. If you do not, the broker is permitted to sell your pledged shares to cover the shortfall, at whatever price the market offers at that time. You could lose long-term holdings you never intended to sell.
Exchanges also have rules on how much of the margin for certain positions must be in cash rather than collateral. Your broker's app shows these requirements.
How to unpledge
When you no longer need the margin, you can request an unpledge in your broker's app. The shares become available to sell or transfer once the request is processed. If the margin they provide is being used for open positions, you may need to close those positions or add funds first.
Questions to ask yourself first
- Would I be comfortable if these shares were sold at a bad time to cover a loss?
- Do I understand the margin rules for the positions I want to take?
- Do I have spare cash to add if margin falls short?
Frequently asked questions
Do I still get dividends on pledged shares?
Yes. Pledged shares remain in your demat account and in your name, so corporate benefits such as dividends and bonus shares come to you.
Is there a charge for pledging?
Brokers and depositories may charge for creating and removing pledges. Check the current charges in your broker's tariff before you pledge.
Can my broker pledge my shares without my permission?
No. Every pledge must be authorised by you through the depository OTP sent to your registered contact details. If you receive a pledge OTP you did not request, do not use it and contact your broker immediately.
Sources
- SEBI – Margin obligations to be given by way of pledge/re-pledge in the depository system (February 2020)
- SEBI – Implementation of the margin pledge circular (July 2020)
Risk disclosures on derivatives
- 9 out of 10 individual traders in equity Futures and Options Segment, incurred net losses.
- On an average, loss makers registered net trading loss close to ₹50,000.
- Over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs.
- Those making net trading profits, incurred between 15% to 50% of such profits as transaction cost.
Source: SEBI study dated January 25, 2023 on "Analysis of Profit and Loss of Individual Traders dealing in equity Futures and Options (F&O) Segment", wherein Aggregate Level findings are based on annual Profit/Loss incurred by individual traders in equity F&O during FY 2021-22.