Haircut in the Stock Market: Pledged Shares and Margin

A haircut is the percentage deducted from a security’s valuation before it counts as collateral, meaning assets pledged to support trading. It reduces the margin value you can use; it does not remove that percentage of your shares. The applicable rate depends on the accepted security and provider. Check the current approved list rather than relying on a general rate for large companies.

The haircut calculation

Eligible collateral value = accepted security value × (1 − haircut percentage ÷ 100). The haircut amount is the difference between the accepted gross value and the resulting collateral value. This is a valuation calculation, separate from the margin required for a particular trade.

For equities, NSE Clearing’s liquid-assets page values accepted securities from NSE closing prices and deducts the applicable haircut. It also states that eligible securities and haircuts can change. A current screen quote and the valuation price used for collateral can therefore differ.

The result is not the same as cash in your bank account. For the trading deposit itself, read margin explained. A haircut answers how much a pledged asset counts; a margin requirement answers what a position needs.

Worked example: from pledged value to collateral

Suppose, only for this example, you pledge 100 shares valued at ₹1,000 each and the accepted haircut is 20%. These are made-up inputs. They do not establish the current rate for any company.

You still hold the same share quantity in this example. The ₹20,000 is the valuation buffer. It is not a separately paid fee, a realised investment loss, or permission to lose that amount in a derivative position.

Haircut meaning in simple words

A haircut is a discount. When you pledge shares to your broker as margin, the broker does not give you credit for their full market value. It trims some percentage off first. That trim is the haircut. If you pledge shares worth ₹50,000 and the haircut is 10%, only ₹45,000 counts as margin. You still own all the shares.

You may also hear "haircut" outside the stock market. In everyday speech, "taking a haircut" means accepting a loss, such as a lender receiving less than it is owed. In this glossary page, the word always means the valuation discount on collateral.

How exchanges decide the haircut: VaR and ELM

The discount is not picked at random. It follows from how much a share can fall in a short time. Clearing corporations measure that with Value at Risk, or VaR, an estimate of the loss that should not be exceeded over a short period at a high confidence level. A volatile share gets a higher VaR and so a higher haircut, and a steady large-company share gets a lower one.

ELM, or extreme loss margin, is an extra layer added on top of VaR for losses beyond the normal range. Together VaR and ELM make up the basic margin on a cash-market purchase. For pledged shares, search results quoting NSE Clearing state that the haircut cannot be lower than the share's VaR rate for the day, and a broker may apply a higher one under a disclosed policy. Zerodha's approved-securities page also says its haircut is "subject to a minimum of VaR+ELM+Adhoc".

Because VaR is recalculated as prices and volatility change, the haircut on one share can change from one day to the next. Treat any percentage in a blog as an example. The live figure is in your broker's approved-securities list and in the NSE Clearing collateral files.

Haircut vs margin vs leverage

These three words get mixed up. A haircut answers "how much of this asset counts?". Margin answers "how much do I need to hold for this position?". Leverage answers "how large is my position compared with my own money?".

• Haircut: reduces the value of pledged shares, so you get less margin credit than their market value.
• Margin: is the requirement set by the exchange system and your broker for the position you open. See SPAN margin and exposure margin.
• Leverage: is the result of using margin to hold a position larger than your own cash. A higher haircut lowers the margin you can use and so lowers your room for leverage.

For how pledged holdings are treated as collateral, read collateral margin.

What pushes a haircut up or down

• Volatility: larger recent price swings raise VaR, and so the haircut.
• Liquidity: shares that trade thinly are harder to sell near the last price, so brokers and exchanges treat them more cautiously.
• Eligibility changes: the approved list can change. A security removed from the list can stop counting as collateral.
• Broker policy: a broker may be more conservative than the exchange minimum, so two brokers can show different rates for the same share.

Haircut in MTF

MTF, or margin trading facility, lets you buy approved shares by paying part of the price and having the broker fund the rest, with the purchased shares held as security. Here the margin you must put in is tied to VaR and ELM. The BSE FAQ on MTF states that the minimum initial margin is VaR plus 3 times the applicable ELM for Group I stocks that are in F&O, and VaR plus 5 times the applicable ELM for Group I stocks that are not in F&O. Many broker pages describe the MTF haircut in a similar way: it is the share of the stock's value you must fund yourself.

For a made-up case, assume the haircut on a stock is 25%. A purchase worth ₹1,00,000 would need ₹25,000 from you and ₹75,000 funded by the broker, who charges interest on that amount. If the share price falls, the value of the security falls too, and the broker may ask for more margin. Read what is MTF margin trading facility for the full picture.

What a 100% haircut means

A 100% haircut means the security is given no collateral value at all. If you pledge shares worth ₹1,00,000 with a 100% haircut, the collateral value is 1,00,000 × (1 − 100 ÷ 100) = ₹0. This usually shows up for shares that are not on the approved list, are suspended, are very illiquid or are otherwise judged too risky to accept.

If your pledged share suddenly shows a 100% haircut, check whether it has left the approved list, entered a surveillance measure or been suspended. Your holding is still yours. It simply does not count toward margin.

Haircut on stocks vs ETFs, mutual funds and bonds

Different assets get different treatment because they carry different price risk. Exchange-traded funds and liquid-fund units can have smaller haircuts than a single volatile stock, while debt instruments depend on their rating and maturity. Do not assume this: some brokers accept only certain funds, and the approved list sets the number.

Common haircut mistakes

• Treating the haircut as a fee. It is a discount in valuation, though pledging can carry separate charges.
• Using the number from last month. VaR changes, and so does the haircut.
• Counting the full market value of pledged shares as buying power.
• Forgetting that a share price fall and a haircut rise can happen together, as the example above shows.
• Assuming an ETF or mutual fund counts as cash. Check the broker's own classification.

To log margin shortfalls and the collateral you used, record them in your trade notes beside each position. OneTradeJournal logs trades by hand, so write the collateral and the haircut you saw on the day.

Price and haircut can change together

Now assume the valuation price falls to ₹900 while the example quantity stays unchanged. Gross value becomes ₹90,000. Keeping the assumed 20% haircut gives ₹72,000 of collateral.

If the haircut also rises to an assumed 30%, eligible value becomes ₹90,000 × (1 − 30 ÷ 100) = ₹63,000. That is ₹17,000 below the original ₹80,000. Your trading position need not change for its available backing to fall.

These calculations isolate collateral valuation. Whether the account then has a shortfall depends on the actual margin obligation, other collateral, cash and your broker’s terms. Do not call the whole reduction a trading loss: the investment-price change and the haircut adjustment are separate causes.

Cash requirements need a separate check

As checked on 16 October 2026, NSE Clearing says cash must form at least 50% of a clearing member’s liquid assets. That statement concerns the member’s collateral with the clearing corporation. It does not, by itself, describe every retail broker’s funding arrangement or interest charge.

Zerodha’s own pledge help separately describes a 50% cash or cash-equivalent requirement for F&O positions and charges for an overnight shortfall funded through non-cash collateral. Those terms belong to that broker. Ask your provider how it treats cash equivalents, option premium, daily settlement debits and any funded shortfall.

A security classified as a cash equivalent still has its own eligibility and valuation conditions. Do not assume that every mutual fund or exchange-traded fund falls into that category. A low haircut does not establish the cash classification.

Where to find the rate for your holding

• Identify the security precisely, including the security identifier where supplied.
• Check your broker’s current eligible-security list and displayed haircut.
• Check the valuation date and the price used to calculate the margin value.
• Confirm whether the collateral counts as cash-equivalent or non-cash.
• Read the rules for changed haircuts, withdrawn eligibility, fees and debit balances.

FYERS describes haircuts as a risk buffer that varies by security and directs clients to its current list. NSE Clearing refers to its approved-security circulars. Use the applicable list to check a holding’s rate; an old percentage may no longer apply.

For a thinly traded holding, liquidity means how readily it can trade without a large price change. A haircut helps account for collateral risk; it cannot guarantee that a sale will raise the expected amount.

Pledged holdings and new trades remain exposed

Pledging does not hedge the holding. Its price can fall while the additional trade also loses. A planned option spread’s payoff calculation does not freeze the collateral value or remove funding needs before expiry.

Keep the pledge valuation separate from position-size calculations. Record the trade’s own exposure and the source of its margin. That avoids treating the face value of long-term holdings as an available loss budget.

Haircut questions

Sources

• NSE Clearing: collateral eligibility and valuation (opened 16 October 2026).
• FYERS: haircut definition (opened 16 October 2026).
• Zerodha: pledge valuation and cash treatment (opened 16 October 2026).