Margin refers to borrowing money from your broker to buy stocks.
Instead of paying the total price upfront, you only need to deposit a portion.
It allows you to leverage your investments, potentially increasing your
returns. However, it also carries risks, as losses can exceed your initial
investment.
There are several types of margins:
·
Initial Margin: Initial Margin is the upfront deposit
necessary for traders in futures contracts. This deposit ensures enough balance
in your account for daily settlement, even if there's a loss.
·
Maintenance Margin: Maintenance Margin is an extra deposit
required beyond the Initial Margin. Its purpose is to maintain your account
balance above a certain level, serving as a safety net for Margin. If your
balance falls below this level, you'll be asked for an Additional Margin.
·
Additional Margin: It is an extra amount requested by your
broker when your account balance falls below the maintenance margin. Its
purpose is to safeguard your open positions from abrupt market fluctuations,
ensuring that you have adequate funds to cover potential losses.
·
Variation Margin: Also referred to as mark-to-market margin,
this is the daily amount that a trader may need to deposit or remove from their
account to reflect changes in the value of their positions.
·
Margin Call: A trader may receive a margin call from their
broker if the value of their account drops below the maintenance margin
threshold, in which case they will need to make further deposits to satisfy the
margin obligations.
Regulatory Update: SEBI's Change w.r.t. Calendar Spread Margin Benefits
We wish to inform you about an important regulatory update. As per the SEBI circular (no. SEBI/HO/MRD/TPD-1/P/CIR/2024/132 dated October 01, 2024), there will be no margin benefits for calendar spreads on expiry day, effective February 1, 2025.
What Does This Mean for You?
Currently, traders benefit from reduced margin requirements for hedged positions (calendar spreads). However, as per the above SEBI circular, on the expiry day of contracts, this margin benefit will no longer apply.
Example:
(This is for explanation purposes only; actual margins may vary from trade to trade)
If you hold:
A short option expiring on 30th January (margin required: ₹1 lakh), and
A long option expiring on 27th February,
you currently enjoy a margin benefit, requiring only ₹50,000 instead of ₹1 lakh.
On 30th January (expiry day), this margin benefit will be removed, and you’ll need the full margin of ₹1 lakh.
What Should You Do?
Check your positions: Ensure sufficient margins are available on expiry day to avoid margin shortfalls.
Plan: Review your strategies and adjust your trading approach accordingly.
Please note that if you fail to ensure adequate availability of margins in your account on the expiry day, action for margin shortfall will follow and the positions would be squared off post 1 p.m. on previous day of expiry day, on a best-effort basis by RMS and any loss or penalty thereof will have to be borne by you.
If you have any questions or need assistance, feel free to reach out to your relationship manager or contact our support team at support@5paisa.com
Stay informed, stay prepared.