Is your Zerodha trading account showing a negative balance? Have no idea what to do or why this occurred. Don’t worry, we’ve got you covered. Let us go over why Zerodha showing a negative balance in detail.
Why Zerodha Fund Balance Showing Negative?
Zerodha fund balance is the total amount in the trading account that is available for taking new positions. Now, this gets reduced if you have taken a future position and facing loss, or have opened a new position using collateral margin, etc.
To understand this, let’s discuss this in detail:
Mark to Market Loss
Now when you take a future position in any index or share, then the profit and losses get settled daily. Here is your position is in loss then the amount gets deducted from the existing trading account balance.
Due to this, the fund balance in Zerodha Kite becomes negative.
Execution of Market Order
The market order of the F&O contract is executed after the validation of funds available in your trading account with respect to the previous close price.
Here if the market opens at a higher price then the fund balance is reduced and shows negative in case there was a limited amount in your trading balance.
For example, you placed an AMO trade in Bank Nifty’s future contract for 1000 quantities which was trading at ₹90.10. The required margin to execute the trade is thus ₹90,100. If you have this much amount then the order gets validated.
Now let’s say the market opens at ₹120.25. Since your order was validated it gets executed and here the fund required would be ₹1,20,250.
The difference in validation and execution value (1,20,250-90,100) ₹30, 150 will be displayed as negative balance in the Funds.
New Position Using Collateral Margin
Another case, when your fund balance becomes negative is when you use collateral margin by pledging your shares. Here the negative fund balance is equal to the collateral margin you used to take a position in the market.
Let’s understand this with the help of an example.
Assume your ledger’s opening balance is ₹2000 and now you have a collateral margin from equities worth another ₹2000. Using this amount you open a trade position ₹4000.
Here if you hold your position overnight, then at the end of the trading day, the fund balance will reduce by ₹2000, and hence it will show as – 2000 in the Kite app.
Zerodha deducts AMC charges from the available fund in your trading account. Similarly, DP charges in Zerodha are deducted directly. Here if the existing balance is around 0 then your fund balance becomes negative.
Why is My Withdrawal Balance Negative in Zerodha?
The withdrawal balance in Zerodha is the amount that you can transfer to your trading account but sometimes you find it negative in your trading app.
Wondering what could be the reason behind this?
Well! if you are in a futures position then you might have heard about rolling settlement. This means that if you sell equity shares, then the amount received can be used to buy additional shares and the amount earned as profit on selling can be credited to your bank account.
But F&O contract settlement is done after one trading day and thus the amount you earned from the trade will be available only for withdrawal one day after the expiry.
Till then the withdrawal balance will be negative and becomes positive once the settlement cycle is completed.
Does Zerodha Charge for a Negative Balance?
As discussed above, there are different scenarios where the fund balance becomes negative. Here Zerodha charges you a penalty on the debit amount.
If you have opened a position for which your account shows a negative balance, then the broker charges you an interest equal to 0.05% per day.
So, for example, if on the execution of the order, your fund balance is reduced by ₹30,,000 and you are unable to cover the negative balance for 10 days, then the total interest charged on you would be:
Other than this, with the negative fund, Zerodha brokerage for futures and options would be ₹20 extra. Hence per trade charges would be ₹40 instead of ₹20.
A negative fund or withdrawable balance doesn’t really necessarily imply that your trading account is in debt.
It just indicates that the cash is being settled. Your withdrawal request will fail if you execute it when the withdrawable balance is negative, because withdrawal requests can only be issued when the money is settled in accordance with the rolling settlement.
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