Margin Pledge is a process in which users can pledge their stocks to the broker in return for a collateral margin that can be utilized for trading.
Let’s understand this better via an example; suppose I am an investor who has shares of RIL, TCS and Infosys worth Rs 2,00,000 in his holding. Now a trading opportunity arises but due to lack of funds, I am unable to seize it. So, I decided to pledge my stocks to the broker. He then deducts a % haircut (Haircut is the amount that covers for the risk a broker is exposed to if the collateral share prices move erratically) of say 20% from the total value of my stocks (calculated at their current market price), i.e., Rs 40,000 and gives me the remaining value of Rs 1,60,000 as a collateral margin which I can now use for trading opportunities.