Important Update: On Margins, Usage of Broker Funds, and Interest Charges

Important Update: On Margins, Usage of Broker Funds, and Interest Charges

If you are a Stock Market trader, you already know by now that over the past few months there have been many changes in how margins are provided & provisioned based on the regulations and circulars released by SEBI and Exchanges from time to time.

These changes affect not just you as a trader but also us as a Stock Broker, while we allow you to trade as much as you can and as fast as you can, it is important that you and us remain compliant with the regulations at all times. Hence it is prudent for clients (you as users) to maintain margins in the same ratio as broker’s do. In case of shortfalls in your margins, the same are fulfilled by brokers (in this case Dhan) and for the usage of the funds, there are interest charges that are charged by brokers (including us) on the debit balance in your ledger as Delayed Payment Charges (DPC). At Dhan, we want to be super transparent and hence don’t want you to be surprised, hence we thought we will walk you through these in relevant details.

Change in Margin Balance Ratio for Users

Traditionally, the Clearing Corporation (CC) has required brokers like us to maintain a 50:50 ratio for margins, which is split as

  • 50%: cash and cash equivalents
  • 50%: non-cash (approved securities)

You as a trader - can take a trade or have an open position in the market which is either funded fully by cash and cash equivalents or is partly funded (upto 50% by you and rest by the broker).

If you are trading with full cash and cash equivalents provided by you, you do not have to worry about anything here including the interest charges as the 100% margin is provided by you.

But when you take a trade or have an open position - which is part funded by your cash (upto 50% minimum) and rest with broker’s money - then for the usage of these broker’s money - there is an interest amount that is charged - which is commonly referred to as DPC or Delayed Payment Charges. This will be applicable only for the time when your trades use broker’s money and these positions are not exited / settled.

Why is There a Change for DPC?

As an industry practice, when you as a user avail margins/leverage, a broker grants the request based on:

  • Cash available in your trading ledger (No DPC in this case)
  • Pledge margin value of your securities (With haircut applicable)
  • Fixed percentage of unsettled sell amount (80% of sell amount on same day and 100% on next day in lieu of Early Pay-in)

These usage of funds and application of margins is prescribed by the exchanges and regulator across all stock brokers.

Approving the margin requirement comes at a cost to the broker, especially when margins are granted against pledged securities and unsettled sell amount because the Clearing Corporation blocks the broker’s margins until settlement, which is T+2 days (excluding holidays). That’s why there’s an interest applicable on margins utilized in excess of the 50:50 split.

More on Interest on Delayed Payment (DPC)

As a layman’s understanding, DPC is an interest levied on the debit balance in your ledger. However, it is pertinent to note that DPC is also applicable on margins granted to you against securities collateral and margins in lieu of unsettled sell proceeds.

The DPC or interest rates currently stands at 18% p.a. You might be wondering when a DPC occurs in your ledge. Broadly, it’s under the following scenarios:

  • When you take positions based on margins granted to you but margins are not maintained in the 50:50 ratio as prescribed by exchanges.
  • Do not pay for Buy Trade within T+2 days
  • When you avail margin funding facility
  • When charges debited in the ledger are not paid immediately

Here’s an example 1. Say Mr. Jay Kumar buys shares worth Rs. 1,00,000/- on Monday based on the margin availed by him against shares worth Rs. 1,25,000/- sold on the same day. The exchange’s minimum upfront margin requirement is say Rs. 20,000/- for Buy Trade and Margin is required to be maintained in a 50:50 ratio. In the given case Jay Kumar does not have either Cash or Securities margin therefore, the interest will be applicable on Rs. 20,000/- for 2 days i.e. Monday & Tuesday.

In another example 2. Say, Mr. Jay Kumar buys shares worth Rs. 1,00,000/- on Monday based on the margin availed by him against securities pledge worth Rs. 1,00,000/- (after hair cut value). The exchange’s minimum upfront margin requirement is say Rs. 20,000/- for Buy Trade and Margin is required to be maintained in a 50:50 ratio. In this case, Jay Kumar does not have a Cash margin. But, he has given Securities margin. Thus, the interest will be applicable on the 50% Cash Component of margin of Rs. 10,000/- for 2 days i.e. Monday & Tuesday.

Now, Mr. Jay Kumar was supposed to pay Rs. 1,00,000/- by T+2 days. But, he delays the payment beyond T+2 days and makes the payment on Thursday. Then he will be required to pay DPC @ 0.0493% per day (18% p.a.) for 1 day.

Possible Scenarios for DPC

Hope this is clear to you on how and under which scenarios the Delayed Payment Charges for Margins are applicable.

On Dhan, for trading in intraday stocks we provide margins on 900+ stock for Intraday - this is completely free and no interest rates are applicable on Dhan for intraday in cash segment. And while trading, users on Dhan have the option to get margin benefit on Pledge Shares - where you can get additional margin instantly in a few minutes on over 1450+ stocks.

The pledge benefit that Dhan provides to you can be availed for Options Buying as well as Selling, on all types of Trades (Buy or Sell) and on all segments (Equity, F&O, Currency & Commodities) and across all Exchanges (BSE, NSE & MCX).

Thank you

Rajesh Jain

4 Likes

@Rajesh please clarify-

If I have collateral margin worth 5L (no cash) and buy derivative worth 5L but closed it on the same day (INTRADAY) Will i be still charged?

In my case I was charged for 12th Aug for intraday trades and also on 13, 14 and 15 which were holidays. Bear in mind that 12th Aug was intraday trade and was closed on the same day

If yes why, I have not seen any broker charging for INTRADAY?

Hi Arvind,
Thank you for sharing your feedback.
Please note that, when derivative (FNO/Currency/Commodity) position is taken against only non-cash collateral, interest will be applicable on intraday peak margin because, margin are required to be maintained with exchange in 50:50 before placing the trade (minimum 50% in Cash/Cash Equivalent). However, interest on intraday peak margin is not applicable on holidays.

@Rajesh Thank you for the explanation. This is the most ambiguous aspect of Options Trading.

On the money screen, it would be quite helpful if you displayed the individual components instead of a combined margin. ( Margin Available: Noncash Equivalents + Cash Equivalents + Liquid/Withdrawable Cash). I openeed a product enhancement request for the same a few weeks ago.

Happy to see that Dhan is sticking to 18% as opposed to the ludicrous rates employed by others. Dhan might also lead by example in protecting their users by disabling the availability of DPC Money and allowing professional traders to enable it when necessary.

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Hi,
Thank you for your feedback. We will see how this can be incorporated in the margin available page.

1 Like

Hello Rajesh,
It would be good if the Dhan team can create some kind of calculator which available cash, pledge share margin, and put some position with a number of days. This way, it’s easy for trader to identify how much extra they need to pay if they utilize such feature,

Thanks Jigar for your feedback.
Will surely look into your suggestion.

Give me more explanation please.
Lets assume i have created a hedge position of buying and selling of 1:1 .
Your basket saying i need 25lakh margin. And hedge benefits is 8lkh approx.
I. have 40 lakh in my account and i have executed my order then what?

if i have (5 lakh in Cash) & (10 lakh as collateral/pledge) & if i buy options total worth Rs 12 lakh out of my Total 15 , so 3 lakh remains in which? Cash or collateral? , will I still be charged for 50% quota in cash as DPC ?? , will the positions get auto square off ???

Hi @Varsha777,

DPC will be applicable, if you have not maintained 50% cash of your position.

We have shared detailed explanation above.

50% cash or cash equivalents right!

Hi @Saurabh88,

If you initiate any position with hedge benefit you get the margin benefit as usual, but while squaring off you need to exit your parent leg first to avoid any margin shortage which result in Penalties & DPC.

‌In case of hedge break, the margin requirement increases as per the normal order requirement which leads to margin shortage.

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@Gangavarapu That’s right, cash or cash equivalent.

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Now this confuses me, consider this case, I have never pledged anything, do plain-Jane trading, load money, buy shares. So, on Monday suppose cash is ~0 in my account, if I sold 125K of Reliance from my demat holdings and buy TCS worth 100K (as only 80% is available on T day) I would have to pay interest charges on 20K (minimum upfront margin) for 2 days as CC won’t settle it before T+2 days? If this is the case then I guess only Dhan is charging this money, I trade on Zerodha and never paid such interest money there. Also, then why Dhan blocks entire 100% on cash delivery trades they should block only minimum upfront margin and take rest on T+2 day. can you please clear?
Many Thanks!

Hi @Richa

Welcome to Dhan Community!

There will be no DPC in the scenario you have mentioned. We had posted an update regarding this here Pricing Update: Dhan is waiving off DPC Interest on Delivery-based Transactions | w.e.f 1st Oct’22

Keep sharing your feedback. Thanks!