The Indian stock market offers endless profit-making opportunities. Most investors pick undervalued stocks with high growth potential and hold them until the price hits a desired target to book profits. Once a sell order is placed and fully executed, SEBI mandates that the settlement must be completed within T+1 (T+0 for select stocks), meaning that you must receive the full sale proceeds amount after one day. However, SEBI has introduced a process called margin on selling stocks that offers a portion of the sale proceeds to investors immediately after the sell order is fully executed. Investors can use this margin to re-invest in stocks immediately.

If you are a stock market investor, it is vital to know about the margin on selling stocks, as it can help you buy more stocks immediately to potentially increase your profit margin. This blog will help you understand what is margin on selling stocks and its impact on investors.

• Margin on selling stocks or peak margin was introduced by SEBI in December 2020.
• Under peak margin requirements, stockbrokers can only extend 80% of the sale proceeds as a margin for immediate re-investing.
• The remaining 20% amount is credited to the trading account after one business day.

The margin on selling stocks, financially known as peak margin, is the portion of the money stockbrokers can offer to investors to invest immediately in stocks after their current sell order is fully executed. The current peak margin is 80%, which means that 80% of the total amount earned by selling stocks in a single sell order can be made available by stockbrokers as a margin, which investors can use to invest immediately. The rest of the remaining 20% is credited to investors' trading accounts on the next day. If the next day is a trading holiday, the remaining 20% amount is credited on the next business day.

For example, if you have sold shares worth Rs. 10,000, you will immediately get Rs. 8,000 as a margin after the order is fully executed. The remaining Rs. 2,000 will be credited to your trading account on the next business day.

The Securities and Exchange Board of India (SEBI) introduced a margin on selling stocks in December 2020. Its circular restricted stockbrokers from immediately giving the entire sale proceeds amount as a margin. The main aim of introducing a peak margin of only 80% was to ensure that the stockbrokers avoided giving excessive leverage to investors over the minimum margin requirement. Now, stockbrokers can only extend 80% of the sale proceeds amount of stocks as margin, while the remaining 20% is credited on the next business day.

The remaining 20% is the buffer amount that stays with the stockbroker until the shares you have sold are credited to the dreamt account seller and the money for the shares is received by the depository. As this settlement process takes T+1 days, the remaining 20% is credited to your trading account after one business day from the day of the transaction. If you have not used the 80% margin, you can withdraw the whole amount (80%+20%) on the next business day.

Peak margin impacts investors as they can only use 80% of the sale proceeds immediately after executing their sell order. However, this is good for investors as a significant portion of the sale proceeds is available for investing. A peak margin of 80% allows investors to re-invest a significant amount of stock sale proceeds as a margin for new trades, improving liquidity and enabling quicker reinvestment. However, investors are not allowed to withdraw the 80% margin and can only use the amount for re-investing, which may negatively impact liquidity for investors who want to realise cash. They can only withdraw their sale proceeds on the next business day when the remaining 20% amount is also credited to their trading accounts.

Margin on selling stocks or peak margin is the portion of proceeds from selling stocks that stockbrokers can offer as margin for new trades, currently set at 80%. It enhances liquidity by allowing investors to reinvest a large share of their sale proceeds immediately. Now that you know margin on selling stocks meaning, you can better utilise your funds after placing a sell order.