Pledged Shares, ETFs & Mutual Funds as Algo Collateral

Stratzy Algos
1

Can pledged shares, ETFs, or mutual funds be used as collateral for Algos?

2

Hi @AlgoEdge

Yes. Pledged securities can be used as collateral for Trading Algos, subject to the broker’s eligibility criteria and applicable margin requirements.

  • Trading Algos: Eligible pledged shares, ETFs, and mutual funds can be used as collateral to meet the margin requirements for Trading Algos. The broker applies the applicable haircut, and the resulting collateral value is considered toward the available trading margin.

  • Investing Algos: Cash margin is required for Investing Algos. Pledged securities/collateral margin cannot be used for deploying Investing Algos.

If you have eligible shares or ETFs pledged with your broker, the collateral value available after the applicable haircut can contribute toward the margin required to run a Trading Algo.

In short:

Trading Algo → Pledged eligible shares/ETFs/mutual funds can be used as collateral
Investing Algo → Cash margin is required

You can check with your broker for the latest list of eligible securities, applicable haircuts, and the exact cash/collateral margin requirements for your account.

I hope this clarifies your query.

1 Like
3

Under SEBI regulations for Futures & Options (F&O) and option trading, at least 50% of the total margin required for open positions must be maintained in cash or cash equivalents. The remaining 50% can come from non-cash collateral, such as pledged stocks or approved mutual funds.

– Could you please enlight about this?

Trading algos can be executed with pledge amount but there is this condition too right? We need to maintain 50% of cash component??

4

Yes that’s right for cash component u can use liquid etf or gsec they are considered cash component once pledged , 50% equity or gold or others 50% liquid or gsec etf

5

Say I have 10lkhs, I should invest 5lkhs in etf or stocks, 5lkh gsec. + 1lkh pure cash for any loss recovery…

Is that set correct? Do we need to maintain some pure cash as well right??

6

Yes pure cash needed for losses and charges

I will share what I do u can adjust as u feel

I keep pure cash 2x of max combined dd for my algo set - gives me flexibility to seat through longer time and money did if it happens and compensate for changes are max dd in strazy app does not include things like brokrage and charges and they differ for different users

60% in liquid etf or gsec 40% in equity as equity can grow faster than liquid make make ratio 50-50 or even 40-60 also equity can fall down fast as well so slightly higher liquid protects u from margin going down fast and your trading can easily compensate for returns due to less equity

Assuming u have 10 lkah and let’s say max dd is 10% and u allocated 8 lakh to algos

So 80*2=1.6 lkah pure cash

Rest invested 60-40 or 65-45 or even 70-30 pledged and used as margin for trading algos ,

This is assuming u use combination of 90% selling and 10% OB or something like that which have less max historical dd

1 Like
7

By the way sgbs are also considered as cash equivalent.

8

Yes but since there taxation changed they become less attractive to hold