How mtf liquidation works

Need Help ℹ️
1

@PravinJ @Pranita @Divyesh

Let’s say, I bought 100 shares @ 100 rs. for XYZ company.

Value: 100*100=10000
MTF: 4X
MY CAPITAL: 2500
BROKER’S CAPITAL: 7500
COMBINED LEDGER: 2500-10000=-7500

LET’S SAY NOW THE PRICE FALLS TO: 98 RS
CURRENT VALUE: 98*100= 9800

HOLDING COVERAGE: (COMBINED LEDGER + CURRENT VALUE)/CURRENT VALUE =(-7500 +9800)/9800 = 23%

now as per your RMS if holding coverage goes below 20% the position will be squared off.

AS PER THE ABOVE HOLDING COVERAGE FORMULA IF I CONSIDER HOLDING COVERAGE =20% AND CALCULATE THE CURRENT VALUE

20% = (-7500 + CV)/CV
CV= 9375 = LIQUIDATION VALUE
LIQUIDATION PRICE= 9375/100= 93.75

My questions are:

  1. My calculation is ok or not?

  2. If the calculation is ok, then the below liquidation price is 93.75. Dhan will liquidate my position immediately?

  3. If I have the capital for investing in a Dhan account and the price reaches 93.75 will my position get squared off, irrespective of the capital available in the account?

  4. CAN I AVOID LIQUIDATION IF I MAINTAIN IDEL CASH IN THE DHAN ACCOUNT?

  5. Does liquidation of one script will affect my other positions as well? My other positions are treated as separate positions or you will liquidate the other position as well if only one stock reaches the liquidation price?

Please guide.

1 Like
2

Hi @Ankuk,

  1. Yes, the shared calculation is correct.

  2. & 5. The MTF position shall be marked to market on a daily basis. Accordingly, at any point of time, if the holding coverage goes below 20% of the total portfolio, the holding will be liquidated to the extent of shortage. MTF marked to market is checked at portfolio level, not scrip level, so if you have 2 stocks on margin, holding coverage is calculated at overall level.

  3. & 4. If sufficient funds are maintained/added, you can continue holding your MTF shares.

3

ok.

  1. So It does not matter if one or two stocks go below 20% of their holding coverage.
    As long as the whole portfolio’s holding average is > 20%, I am safe.

  2. And if the whole portfolio’s holding average goes below/near 20%, then I can add some funds to avoid liquidation.

Am I right in both statements? @Poornima

4

Hi @Ankuk, Yes, correct.

5

Thanks, @Sameet @Poornima for clarification.

6

this is very good thread Ankuk & Team Dhan, I had the same question about calculation .
based on above calculation is it right to say 6.25% of stop loss shall be kept in mind to avoid liquidation?
thanks