How to Pledge Shares in the Stock Market and Use Them to Buy More Stocks | Economy News

What Is Pledging?

Pledging in the stock market means using your existing shares as collateral to get extra funds or margin from your broker. This allows you to buy more shares or trade without selling your current holdings. It’s a popular way for investors and traders to unlock the value of their portfolio and increase their buying power.

How Does Pledging Work?

When you pledge shares, you keep ownership but give the broker the right to hold them as security. In exchange, the broker gives you a margin—extra funds you can use to buy more stocks or take positions in the market. If the value of your pledged shares falls, you may have to add more shares or cash as collateral.

Key Points:

You do not sell your shares; you only use them as security.

You can use the margin to buy more shares or trade in segments like F&O (Futures & Options).

If you fail to maintain the required margin, your broker can sell the pledged shares to recover the funds.

Step-by-Step: How to Pledge Shares and Use the Margin

Let’s break down the process using a typical Indian broker’s platform:

1. Check Eligibility

Not all shares can be pledged. Only certain approved stocks are allowed.

Check your broker’s list of eligible stocks.

2. Initiate the Pledge Request

Log in to your broker’s app or website.

Go to the “Portfolio” or “Holdings” section.

Select “Pledge Holdings” or “Pledge Shares” option.

3. Select Shares and Quantity

Choose the stocks you want to pledge.

Enter the quantity. The system will show you the margin you’ll get after applying a “haircut” (a percentage deducted to cover risk).

4. Confirm and Authorize

Review the details and agree to the terms.

You’ll receive an OTP (One-Time Password) from the depository (CDSL/NSDL) to authorize the pledge.

5. Margin Is Credited

Once approved, the margin is credited to your trading account—usually within minutes or by the next trading day.

You can now use this margin to buy more shares or take new positions.

Example

Suppose you have 100 shares of Reliance Industries worth Rs 2,50,000. You pledge these shares with your broker. After a 20% haircut, you get a margin of Rs 2,00,000. You can now use this margin to buy more shares or trade in the F&O segment, without selling your original Reliance shares.

Important Things to Remember

Charges: Brokers charge a small fee per pledge request (e.g., Rs 20– Rs 30 + GST per ISIN).

Haircut: The margin given is less than the full value of shares to cover risk (usually 20–50 percent haircut).

Risk: If the share price drops, you may face a margin call and need to add more collateral or cash.

Ownership: You keep receiving dividends and voting rights, but cannot sell the pledged shares unless you unpledge them or settle the margin.

Unpledging: You can unpledge shares after repaying the borrowed margin or closing your positions, but charges may apply.

Tips for Safe Pledging

Only pledge shares you don’t plan to sell soon.

Don’t pledge all your holdings—keep some as a safety net.

Monitor your pledged shares and margin requirements regularly.

Understand the risks, especially during volatile markets.