🎯 In 30 seconds: "Margin" means three different things in India. First, the upfront margin the exchange makes your broker collect before any trade. Second, the Margin Trading Facility (MTF), where your broker lends you part of the money to buy shares and charges interest. Third, collateral margin, where you pledge shares you already own to trade more. SEBI rules make brokers collect margin upfront and check it through the day (peak margin). Borrowing magnifies gains and losses in the same proportion, and if your stock falls the broker can sell your shares to recover the loan.
A gold loan, but with shares
Many Indian families have taken a gold loan at some point. You hand over a gold chain, the lender values it, keeps a safety cushion and gives you a loan for less than its full value. If the price of gold falls far enough, the lender asks you to bring more gold or repay part of the loan. If you do not, the lender can sell the gold.
Margin trading works the same way, with shares in place of gold. The shares are the collateral. The broker lends against them, keeps a cushion called the margin, and can sell them if the cushion gets too thin. The main difference is speed. Gold prices move slowly. Share prices can fall 10% in a morning.
Three words you need for the rest of this chapter:
- Market value: what the shares in the position are worth right now.
- Loan (funded amount): how much the broker has lent you.
- Equity (your margin): what is actually yours.
Equity = market value minus loan.
The loan does not shrink when the price falls. Only your equity does. Everything else in this chapter follows from that.
The three meanings of "margin" in India
| What people call it | What it is | Are you borrowing? |
|---|---|---|
| Upfront margin (VaR + ELM), peak margin | The money the exchange requires to be blocked before a trade, to cover the risk of that position until it settles | Not by itself. It is a deposit, not a loan |
| Margin Trading Facility (MTF) | Your broker pays part of the price of delivery shares and you pay interest on that part | Yes |
| Collateral margin (margin pledge) | You pledge shares or ETF units you own, and after a haircut their value counts toward the margin for other trades | Indirectly. It lets you take bigger positions without adding cash |
Intraday leverage, futures and options all sit on top of the first meaning: the exchange only asks for a fraction of the position value upfront, so a small amount of money controls a larger position. Futures and options are covered in Futures basics and Leverage everywhere. This chapter is about the cash market.
Upfront margin: VaR and ELM
Before your broker can place a buy order for you, the clearing corporation wants enough money in the system to cover what the position could lose before settlement. SEBI's risk management framework for the cash market sets two main parts:
- VaR margin (value at risk): meant to cover the largest loss expected on 99.9% of days. It is recalculated through the day.
- Extreme loss margin (ELM): an extra layer for days that go beyond what VaR covers. SEBI's framework sets it at 3.5% for any stock.
Stocks are grouped by how easily they trade (how small the "impact cost" of a ₹1 lakh order is), and the VaR floor depends on the group:
| Liquidity group | VaR margin (SEBI framework) | Minimum VaR + ELM |
|---|---|---|
| Group I (liquid) | Based on the stock's volatility, at least 9% | 12.5% |
| Group II (less liquid) | Based on volatility, at least 21.5% | 25% |
| Group III (illiquid) | 50% if it trades at least once a week on any exchange, otherwise 75% | 53.5% or 78.5% |
These are floors. A volatile stock can carry a VaR of 20% or more, exchanges can add further margins in surveillance cases, and your broker is free to ask for more than the exchange does. The margin your broker's order screen shows is the number that matters for you.
Peak margin. Before December 2020, client margin was checked mainly against end-of-day positions, which left room for large intraday positions on small deposits. SEBI's July 2020 framework changed that. Clearing corporations now take several snapshots of every client's positions during the day, and the broker must have collected enough margin for the highest of those snapshots. It was phased in at 25%, 50%, 75% and then 100% of the peak requirement from 1 December 2020, reaching 100% in September 2021. The practical effect: intraday leverage in Indian cash equities is limited to what the upfront margin allows, and you cannot be given more by your broker.
Worked example (hypothetical). You want to buy ₹1,00,000 of Sharma Foods Ltd for an intraday trade. Your broker's screen shows a margin of 20% for this stock. It blocks ₹20,000 from your balance. If the stock falls 5% before you sell, you lose ₹5,000, which is 25% of the money you put up. The 20% figure is not a discount on the shares. It is the size of the cushion, and the loss still comes out of your pocket in full.
The Margin Trading Facility (MTF)
MTF is the closest thing India has to a US-style margin loan. You buy shares for delivery, pay part of the price, and the broker funds the rest. You keep the shares as long as you keep paying interest and maintaining the margin. The rules come from SEBI's master circular for stock exchanges and clearing corporations (30 December 2024), as reproduced in SEBI's June 2026 consultation paper:
| Rule | What it says (as of October 2026) |
|---|---|
| Eligible securities | Only Group I equity shares and units of equity ETFs that are Group I |
| Initial margin, stock also in F&O | VaR + 3 times ELM (at least 9% + 10.5% = 19.5%) |
| Initial margin, other Group I stocks and ETFs | VaR + 5 times ELM (at least 9% + 17.5% = 26.5%) |
| How you pay the margin | Cash, cash equivalents or equity shares, with a haircut |
| After the purchase | The broker must ensure the margin is maintained at all times, and makes margin calls on any shortfall. Collateral and funded shares are marked to market daily |
| Rising prices | A rise in your collateral shares can give you more exposure. A rise in the funded shares themselves cannot |
| Selling your shares | The broker must list in the Rights and Obligations document the situations in which it can sell, and may sell only in those situations, including your failure to meet a margin call |
| Who can offer it | Only corporate brokers with a net worth of at least ₹3 crore |
| Whose money | The broker's own funds or borrowings from banks, RBI-regulated NBFCs and similar sources. It may never use one client's money to fund another client, even with permission |
| Transparency | Brokers report MTF exposure to the exchanges by T+1, and exchanges publish stock-wise MTF totals on their websites |
The interest rate is not set by SEBI. Each broker publishes its own, usually as a daily or annual rate on the funded amount, sometimes with a slab structure. Read the rate card and the MTF Rights and Obligations document before you tick the box.
Notice one difference from the US. There, a lower "maintenance" level applies after the purchase. Under the Indian MTF rules the required margin must be maintained at all times. If you put up exactly the minimum, almost any fall in price creates a shortfall.
A margin call, step by step (hypothetical)
Sharma Foods Ltd trades at ₹500. It is a Group I stock that also trades in F&O, and your broker's MTF margin for it is 25%. You have ₹80,000 and want to buy 400 shares through MTF.
| Market value: 400 x ₹500 | ₹2,00,000 |
| Your money | ₹80,000 (40%) |
| Funded by the broker (loan) | ₹1,20,000 |
| Required margin: 25% of ₹2,00,000 | ₹50,000 |
| Cushion above the requirement | ₹30,000 |
At what price does the margin call come? When equity equals 25% of the market value:
Call price = loan / (shares x (1 minus margin %)) = ₹1,20,000 / (400 x 0.75) = ₹400
That is a 20% fall. Had you put up only the ₹50,000 minimum and borrowed ₹1,50,000, the call price would be ₹1,50,000 / 300 = ₹500, which is today's price. The first tick down would create a shortfall.
The stock falls to ₹380.
| Market value: 400 x ₹380 | ₹1,52,000 |
| Loan (unchanged) | ₹1,20,000 |
| Equity | ₹32,000 (21.1%) |
| Required: 25% x ₹1,52,000 | ₹38,000 |
| Shortfall (margin call) | ₹6,000 |
You have three ways to meet the call:
- Add ₹6,000 in cash. The loan falls to ₹1,14,000 and your equity becomes ₹38,000, exactly 25%.
- Pledge other shares you own. Their value counts only after the haircut. With a 12.5% haircut you would need about ₹6,860 of shares (₹6,000 / 0.875).
- Sell part of the position. Selling repays the loan but leaves your ₹32,000 of equity unchanged, so the position left must be no bigger than ₹32,000 / 0.25 = ₹1,28,000. You must sell about ₹24,000 of stock, which is 64 shares at ₹380 (₹24,320). You are left with 336 shares worth ₹1,27,680, a loan of ₹95,680 and equity of ₹32,000, just over 25%.
If you do nothing, the broker can sell for you, at whatever the price is when it acts.
The interest bill
MTF interest is charged on the funded amount every day you hold. With a hypothetical rate of 15% a year:
| Loan | ₹1,20,000 |
| Interest per year: ₹1,20,000 x 15% | ₹18,000 |
| Interest per day: ₹18,000 / 365 | ₹49.32 |
| Held for 90 days | about ₹4,438 |
Before any gain, the 400 shares must rise about ₹11 each over those 90 days just to pay the interest, on top of brokerage, STT, stamp duty and the other charges in What trading really costs. A stock that goes sideways for a year costs you ₹18,000 in this example.
How borrowing magnifies losses
Compare ₹80,000 used two ways: a plain delivery purchase of 160 shares, or the MTF purchase of 400 shares with a ₹1,20,000 loan. Interest and charges are ignored here, which flatters the MTF column.
| Price | Change | Delivery (160 shares) | MTF equity (400 shares) | MTF result |
|---|---|---|---|---|
| ₹600 | +20% | ₹96,000 (+20%) | ₹1,20,000 | +50% |
| ₹550 | +10% | ₹88,000 (+10%) | ₹1,00,000 | +25% |
| ₹500 | 0% | ₹80,000 | ₹80,000 | 0% |
| ₹450 | -10% | ₹72,000 (-10%) | ₹60,000 | -25% |
| ₹400 | -20% | ₹64,000 (-20%) | ₹40,000 | -50% (margin call level) |
| ₹350 | -30% | ₹56,000 (-30%) | ₹20,000 | -75% |
| ₹300 | -40% | ₹48,000 (-40%) | ₹0 | -100% |
| ₹250 | -50% | ₹40,000 (-50%) | -₹20,000 | You owe the broker ₹20,000 |
Leverage of 2.5 times turns a 20% fall into a 50% loss of your money. A beginner's instinct is to look at the top two rows. The bottom rows are the ones that end trading careers.
Pledging shares you already own
If you hold shares in your demat account, you can pledge them to your broker and use their value as margin, mostly for F&O and intraday trades. Since SEBI's circular of 25 February 2020, this must be done as a margin pledge inside the depository system. After COVID-related extensions, the old method, where shares were transferred to the broker's own account, was allowed only until 31 August 2020.
How it works in practice:
- You select shares in your broker's app and request a pledge. Your depository (NSDL or CDSL) sends you a confirmation request, usually by OTP. Nothing is pledged until you approve.
- The shares stay in your demat account. You remain the owner and still receive dividends and corporate actions.
- The value counts only after a haircut. For Group I shares SEBI's framework sets the haircut equal to the VaR margin. Hypothetically, ₹2,00,000 of shares with a 12.5% haircut gives about ₹1,75,000 of collateral. Your broker's pledge screen shows the actual haircut for each holding. Less liquid shares have larger haircuts and some are not accepted at all.
- Haircuts and prices change every day, so your collateral value changes too. A falling market cuts your collateral at the same time as your trades lose money.
- Clearing members must hold at least 50% of total collateral as cash or cash equivalents. SEBI does not apply that 50% test to each client, but many brokers require part of your F&O margin in cash, so pledged shares alone may not be enough.
- If you default on a margin call, the pledge can be invoked and the shares sold. To sell pledged shares yourself, you first unpledge them (some brokers do this automatically when you place the sell order).
What is changing: the June 2026 MTF review
On 18 June 2026 SEBI published a consultation paper on reviewing the MTF framework, with comments invited until 9 July 2026. It notes MTF volumes have grown and proposes, among other things, making the collateral accepted for MTF the same as for normal cash trades, allowing a 30-day rebalancing period when a funded or collateral stock moves out of Group I or into trade-for-trade, and a single Rights and Obligations document across exchanges. Press reports also describe a proposal to raise the broker net worth requirement from ₹3 crore to ₹5 crore. As of October 2026 I did not find a final circular, so the rules in the table above still apply. Check SEBI's circulars page before relying on either version.
Should a beginner use MTF or pledging?
For most people starting out, no. A plain delivery purchase can never cost you more than you put in, never triggers a forced sale and never charges interest. MTF turns a normal fall into a large loss, and the interest works against you every day. The SEBI studies of intraday and F&O traders found that most lost money even before thinking about borrowing costs.
If you do use leverage later, set your own limits first: a maximum loan as a small share of your equity, a price alert well above your margin call price, and a stop that you act on yourself. Taking action at your own level beats having the broker sell at the low of the day. See Position sizing and Beginner mistakes, where MTF overuse is on the list.
Try it
- Open your broker's MTF page or rate card (do not activate anything). Write down the interest rate, how it is charged (daily or monthly, slabs or flat) and the list of stocks it funds with their margin percentages.
- Pick one Group I stock from that list. Using the formula above, work out the margin call price if you had bought ₹1,00,000 of it with ₹40,000 of your own money.
- Look at its daily chart for the last three years. Count how many times the price fell from a recent high by as much as your call price implies. Each one would have been a margin call.
- Add 90 days of interest at the broker's rate and see how much the stock must rise just to break even.
- What is the difference between upfront margin and MTF? Answer: Upfront margin (VaR + ELM) is money blocked to cover a position's risk before settlement. It is not a loan. MTF is a loan from the broker for part of the price of delivery shares, and you pay interest on it.
- What is the minimum initial MTF margin for a Group I stock that is not in F&O? Answer: VaR + 5 times ELM. With the 9% VaR floor and 3.5% ELM, that is at least 26.5%.
- You buy 400 shares at ₹500 with ₹80,000 of your money and a ₹1,20,000 MTF loan. The margin required is 25%. At what price does the margin call come? Answer: ₹400, from ₹1,20,000 / (400 x 0.75).
- You pledge ₹2,00,000 of Group I shares with a 12.5% haircut. How much collateral do you get, and do you still own the shares? Answer: About ₹1,75,000. Yes, the shares stay in your demat account and you keep dividends, but they can be sold if you default on a margin call.
- When can your broker pass a margin shortfall penalty on to you, as of October 2026? Answer: Only in the cases NSE allowed from 1 November 2024, such as a bounced cheque or a broken hedge, and only if the broker's risk policy disclosed it.
Sources
- SEBI: Consultation paper on review of the Margin Trading Facility framework (June 2026, PDF)
- SEBI: Annexure with the current MTF provisions from the master circular of 30 December 2024 (PDF)
- SEBI: Master circular chapter on comprehensive risk management for the cash market (VaR, ELM, peak margin, collateral)
- SEBI: Margin obligations to be given by way of pledge or re-pledge in the depository system (25 February 2020)
- NSE circular NSE/INSP/64315: Guidelines on margin collection and reporting (1 October 2024)
- NSE circular NSE/INSP/67739: Timelines for collection of margins other than upfront margins (29 April 2025)