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Market Intelligence › Basic Terminologies
How pledging works, the haircut, and why this leverage raises risk
Published by The Retail Trader · JUL 26, 2026 · Compliance & Regulation
Shares sitting in your demat can be used as collateral to obtain trading margin. This is called margin pledge, and the process now runs entirely on your confirmation.
You send the broker a pledge request, the depository sends you a link or an OTP, and when you confirm, the shares are marked as pledged. They stay in your own demat.
You do not get the full value of that collateral as margin. A haircut is applied to it, which is larger for volatile stocks.
These points are part of the pledge's design:
• Options cannot be bought using collateral margin — that needs cash.
• Losses are settled in cash, not from collateral.
• A cash-to-collateral ratio often has to be maintained.
• Corporate action benefits on pledged shares still go to you.
Margin obtained through a pledge feels like free money, but it switches on two risks together — portfolio risk and position risk. In a falling market the value of the collateral falls and the loss on the position grows, both on the same day.
This article is educational only — it is not a buy or sell recommendation, it makes no claim of guaranteed returns, and it is not advice. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.