How is the utmost margin for transactions calculated?

To commerce within the spot market or within the derivatives market, you want to have a minimal amount of cash to provoke trades, and that is known as the margin. The utmost margin is the very best margin {that a} market participant ought to keep over a day.

Margin sorts within the money and derivatives phase embrace VaR (worth in danger), ELM (excessive loss margin), SPAN (normal portfolio threat evaluation) and publicity margin. There are different margins resembling advert hoc margin and MTM (mark-to-market) margin.

To provoke a commerce on a futures contract, the minimal quantity of margin required is SPAN plus the margin of publicity. For instance, in the event you purchase a variety of Nifty 50 futures contracts, the margin requirement can be round ₹ 1.6 lakh (SPAN margin of ₹ 1.38 lakh and publicity margin of ₹ 22,000). In an earlier mechanism, brokers might enable intra-day trades by amassing much less margin, for instance ₹ 1 lakh by providing you with extra intra-day leverage.

Nonetheless, underneath the brand new margin checking mechanism, clearing homes would ship 4 margin standing snapshots per day, displaying how a lot margin brokers ought to have collected up entrance. If there’s a shortfall, brokers might be penalized. In consequence, brokers will naturally chorus from providing extreme intra-day leverage any longer.

Now coming again to your positions, the varied snapshots from clearing firm to dealer might doubtlessly point out that the very best margin requirement from you is 1.6 lakh for that day. So the utmost margin requirement for you on this instance can be ₹ 1.6 lakh.

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