Will I Be Able to Trade In F&O With Equity Sale Proceeds | Motilal Oswal

Will I Be Able to Trade In F&O With Equity Sale Proceeds


In light of SEBI’s 20% block rule, many traders are not clear about the dos and don’ts regarding equity sale proceeds. You may not be sure if your equity sale proceeds are available for buyback, futures and options trading, or both – intraday or later on.

Can I Use Equity Sale Proceed?

The key things you need to know in this regard are:

  • If you sell an equity holding today, the sale proceeds from the sale are available for further use later today
  • However, you cannot use the entire sale proceeds on the same day. 80% of equity sale proceeds are available on the day of the sale
  • The remaining credit will be available T+1 day onwards
  • You can enter a new position on the same day, using 80% of the proceeds, which can be another stock or Futures and Options (F&O) position
  • While using the proceeds for intraday and buy-back trades, you must be careful about the margin maintained. Any shortfall can attract a margin shortfall penalty.

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What To Consider While Using Equity Sale Proceeds?

If you are using your equity proceeds to carry out any other stock or F&O transaction, you must keep the margin shortfall in mind. Let us understand it further with the help of the below example.

Assumption – You have no balance in your trading account and 1 share of MRF. You sell the share for Rs 1 lakh. The haircut on the share is 10%.

Trades during the day – You buy one lot of Nifty Futures that was available at Rs 95,000.

Effect – Margin on your Nifty Futures position will be reported as Rs (1,00,000 – 10% of 1,00,000) = Rs 90,000. This will indicate a margin shortfall of Rs 5,000 on the Nifty Futures position. The exchange can charge a shortfall penalty on the same.

Do note that equity cash segments don’t have margin reporting requirements. Therefore, you can use the entire Rs 90,000 on equity delivery or intraday trading, without any margin shortfall penalty consequences.

What Is The F&O Trade And Reported Margin Relationship?

It is clear from the above discussion that 80% of equity sales proceed is available for F&O trading on the same day. However, the settlement cycle for the equity transaction is T+1 day. So, on the day of the sale the equity sales proceed remains unrealised and is, therefore, treated as collateral margin. 

In F&O trades, brokers must report the daily margin amounts due and collected from the traders. This is done after taking their executed trades and open positions into account.

Final Words

When you have used your equity sale proceeds in F&O trading, you are essentially using unrealised sales in a new F&O position. The reported margin deducts the haircut percentage on the equity sold from the sale proceeds. Shortfalls here can attract a penalty. You must keep this aspect in mind if you plan to use your equity proceeds of the day on F&O trades.


Related Articles: When to use market orders and when to use limit orders | How to Use Limit Orders As Market Orders

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