Zerodha is a popular online brokerage firm in India that offers trading and investment services to individuals. As part of its services, Zerodha provides a feature known as “delivery margin.” In this explanation, I will outline what delivery margin is and how it works within the Zerodha platform.
Delivery margin refers to the funds or securities that a trader is required to maintain in their trading account when they purchase shares for delivery or long-term holding. Unlike intraday trading where positions are squared off within the same trading day, delivery trading involves holding the purchased shares beyond the trading day, typically for more extended periods.
When you buy shares for delivery through Zerodha, you need to pay the full value of the shares you wish to purchase, including the applicable taxes and charges. This amount is known as the “total value” or “transaction value.” However, Zerodha provides its clients with an option called the “margin” facility, where they can pay only a portion of the total value upfront and utilize leverage to trade more than their available funds.
The delivery margin offered by Zerodha is a percentage of the total value that the trader is required to pay upfront, while the remaining amount can be settled within a specified time frame, usually two trading days (known as the “T+2” settlement cycle). This feature allows traders to take larger positions in the market with a smaller amount of capital.
The delivery margin percentage varies depending on the stock being traded. Zerodha maintains a list of approved stocks and their corresponding margin percentages, which are periodically updated based on market conditions and risk parameters. It’s important to note that not all stocks are eligible for margin trading, and Zerodha determines the eligibility based on factors such as liquidity, market capitalization, and volatility.
To illustrate how delivery margin works, let’s consider an example. Suppose you want to buy shares of ABC Ltd. for a total value of Rs. 1,00,000. Zerodha may provide a delivery margin of 25% on ABC Ltd., which means you would be required to pay only 25% of the total value upfront, i.e., Rs. 25,000. The remaining amount of Rs. 75,000 can be settled within the T+2 settlement cycle. This allows you to take a position worth Rs. 1,00,000 in ABC Ltd. while utilizing only Rs. 25,000 of your own capital.
However, it’s essential to understand that while delivery margin allows you to trade with leverage, the risk associated with trading remains the same. If the value of the shares you hold declines, you would still be liable for the entire loss. Additionally, if the remaining amount is not settled within the specified time frame, Zerodha may charge interest or penalties.
Zerodha also has certain conditions regarding the utilization of the delivery margin. For example, if you sell the shares within the same trading day, the funds from the sale need to be utilized to cover the remaining amount due. If you fail to do so, Zerodha may block your trading account or initiate penalty charges.
It’s important to note that delivery margin is different from intraday margin, which is provided for intraday trading and subject to separate rules and regulations.
Final Conclusion on What is Delivery Margin in Zerodha
In summary, delivery margin is a facility provided by Zerodha that allows traders to pay only a portion of the total value of shares upfront while purchasing them for delivery. The remaining amount can be settled within the T+2 settlement cycle. This feature enables traders to take larger positions with a smaller capital outlay. However, traders must be aware of the risks involved and ensure timely settlement to avoid penalties or interest charges.