Margin is the money or securities you must deposit to take or hold a position in the stock market, especially in the futures and options (F&O) segment. It is not the full value of the trade, but a fraction of it. This allows traders to use leverage, meaning they can take larger positions using a smaller capital base.
- Margin is the money you put upfront to take a trade. Think of it as your security deposit.
- Leverage is the additional buying power that your broker provides based on the margin you maintain. It’s like a loan that lets you control larger trades with less money.
Table of Contents
Types of Margins in Indian Capital Markets
1. SPAN Margin (Standard Portfolio Analysis of Risk)
SPAN margin is the minimum margin required to cover expected losses from a one-day move in your position. It is calculated by the exchange using a risk-based system. It varies based on the risk and volatility of each contract.
Example: If you buy 1 lot of NIFTY futures, the SPAN margin may be ₹50,000. This value is not fixed and may change with volatility.
2. Exposure Margin
This is charged over and above SPAN to cover unexpected or extreme market movements. It serves as an additional buffer against market risk.
Example: If the SPAN is ₹50,000 and the exposure margin is ₹30,000, you need ₹80,000 in total to initiate the trade.
3. Total Initial Margin
This is the sum of SPAN Margin and Exposure Margin. You must have this total amount in your account before taking an F&O position.
Formula: Total Initial Margin = SPAN Margin + Exposure Margin
4. Premium Margin (for Options Buyers)
When buying options, you don’t need to maintain SPAN or exposure margin. You only pay the full premium upfront, which is called the premium margin.
Example: If a call option has a premium of ₹200 and the lot size is 50, your premium margin would be ₹10,000.
5. Mark to Market (MTM) Margin
MTM margin represents the daily gain or loss based on the difference between your entry price and the day’s closing price.
This margin is applicable to futures and also to short (sold) options positions. However, options buyers don’t face daily MTM charges, as their maximum loss is limited to the premium paid.
Example: If you buy NIFTY futures at ₹20,000 and it closes at ₹19,950, you lose ₹50 per unit. This loss is debited from your account that day.
6. Additional Margin
SEBI or exchanges may impose additional margins during volatile market conditions or special events. This is a temporary measure but mandatory when applied.
Example: During events like Union Budget or elections, an additional 10% margin may be imposed to curb speculation.
7. Special Margin
This is imposed on specific stocks or segments that show unusual price or volume movements. It aims to control speculative activity or price manipulation in that particular stock.
Example: If a small-cap stock suddenly rises 70–80% in a few sessions without fundamental news, a special margin may be applied.
8. Maintenance Margin
After taking a position, this is the minimum balance that you must maintain in your account. If your margin balance falls below this level, you will get a margin call to deposit more funds.
9. Margin Shortfall
This occurs when you fail to maintain the required margins (initial and MTM). A margin shortfall may lead to penalties, interest charges, or forced closure of your positions by the broker.
10. Delivery Margin
For F&O contracts that result in physical delivery, exchanges may require an extra delivery margin near expiry. This ensures that both buyer and seller are capable of fulfilling the delivery obligation.
11. Peak Margin
Introduced by SEBI in 2021, peak margin is the highest margin requirement at any point during the trading day. Brokers must collect this maximum margin from clients, reducing the ability to offer excessive intraday leverage.
12. Intraday Margin
Earlier, brokers offered high intraday leverage for trades that were squared off within the day. But under SEBI’s peak margin framework, this is now restricted. Brokers can no longer offer excessively low intraday margins unless the client has funded the position sufficiently.
13. VaR Margin (Value at Risk)
This applies to the cash (equity) segment and represents the margin needed to protect against losses in 99% of trading scenarios. Stocks with higher volatility attract higher VaR margins.
14. ELM (Extreme Loss Margin)
Also applicable in the cash segment, ELM covers rare or extreme events that go beyond the VaR calculation. Exchanges collect both VaR and ELM together.
Total margin in the cash segment = VaR Margin + ELM
15. Pledged Margin
If you don’t have enough cash, you can pledge your shares to generate margin. This is called Margin Against Shares (MAS). However, a haircut is applied to the pledged value, meaning you don’t receive 100% of the value as usable margin.
Example: If you pledge ₹1,00,000 worth of shares and the haircut is 20%, you will get ₹80,000 as usable margin.
Summary Table
| Type of Margin | Applies To | Purpose |
|---|---|---|
| SPAN Margin | F&O | Covers expected daily market risk |
| Exposure Margin | F&O | Extra buffer for unexpected moves |
| Total Initial Margin | F&O | SPAN + Exposure |
| Premium Margin | Options Buyer | Full premium payment only |
| MTM Margin | Futures, Short Options | Daily settlement of gains/losses |
| Additional Margin | All | Extra margin in volatile situations |
| Special Margin | All | Stock-specific speculative control |
| Maintenance Margin | All | Minimum balance to hold positions |
| Margin Shortfall | All | When margin requirement is unmet |
| Delivery Margin | F&O | For physical delivery contracts |
| Peak Margin | All | Max margin during the day |
| Intraday Margin | Intraday Trades | Short-term trades (restricted now) |
| VaR Margin | Cash Segment | Risk margin based on price movement |
| ELM | Cash Segment | Extra buffer for rare price swings |
| Pledged Margin | F&O | Margin from pledged shares |
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