What is Margin Money?

3. What is Margin Money?

• Definition: Margin money is the amount prescribed by exchanges or Clearing Corporations and collected from investors by brokers before executing a trade on their behalf.
• Purpose: The primary purpose of margin money is to mitigate the risk of non-payment of funds for buy trades or non-delivery of securities for sell trades by an investor.
• Forms of Margin: Margin can be provided in the form of:
  • Cash
  • Securities
  • Cash equivalents, such as:
    • Fixed deposits
    • Bank guarantees
    • Units of mutual funds
    • Government securities
    • Treasury bills in demat form
• Pledging Securities: With effect from September 01, 2020, investors can provide margin in the form of securities only by pledging the securities in favor of a specially designated demat account of the stock broker.
• Early Pay-in: Investors can avail exemption from payment of margin by using the early pay-in facility, where payment of funds or delivery of shares is made to the broker before the pay-in date or as per the time/date specified by the broker.