Margin

Margin is the amount of money or collateral that a trader must deposit with their broker to open and maintain leveraged or derivative positions. It acts as a good-faith deposit ensuring the trader can absorb potential losses without defaulting.

In Indian markets, margin requirements are set by SEBI and the exchanges (NSE/BSE), not by individual brokers. There are several types of margin. Initial margin (also called SPAN margin in derivatives) is the upfront deposit required to open a position. Exposure margin is an additional buffer on top of SPAN margin. Mark-to-market (MTM) margin covers daily profit/loss settlements. And delivery margin applies when derivative positions approach expiry and may result in physical delivery.

For futures trading, the total margin is typically SPAN + Exposure, amounting to 12–20% of the contract value. For example, one lot of Nifty futures (50 units at Nifty 22,000 = ₹11,00,000 notional) might require ₹1,20,000 in SPAN margin plus ₹40,000 in exposure margin = ₹1,60,000 total. For option selling (writing), margins are higher because of the unlimited risk profile.

SEBI's peak margin rules, implemented in phases from December 2020 to September 2021, require brokers to collect margins upfront based on the peak (highest) margin obligation during the day, not just the end-of-day position. This was a landmark regulation that significantly reduced the Leverage available for Intraday trading and was designed to reduce systemic risk in the derivatives market.

Margins can be funded with cash, fixed deposits (after a haircut), government securities, or approved equities (with varying haircuts of 10–50% depending on the security). Understanding margin mechanics is essential because insufficient margin leads to a Margin Call, and continued shortfall can result in forced liquidation of positions by the broker.