Margin Call

A margin call occurs when the equity in your trading account falls below the minimum Margin required by the broker or exchange. It is a demand to either deposit additional funds or close positions to bring the account back within the required margin levels. Failure to meet a margin call can result in the broker forcibly liquidating your positions.

In Indian markets, margin calls are driven by SEBI's margin framework. When you hold a futures position, the exchange calculates your mark-to-market (MTM) profit or loss at the end of each trading day. If your position has lost money, the loss is debited from your account. If this brings your margin below the required level, you receive a margin call - typically communicated via SMS, email, or notification on your broker's platform.

For example, suppose you buy one lot of Nifty futures at 22,000 with ₹1,60,000 in margin. If Nifty falls to 21,700, your loss is 300 × 50 = ₹15,000 (MTM). Your available margin is now ₹1,45,000. If the maintenance margin requirement is ₹1,50,000, you face a ₹5,000 shortfall and must deposit additional funds by the next trading day's opening, or your broker may square off your position.

SEBI imposes penalties for margin shortfalls. If a client fails to maintain adequate margin, the broker faces penalties from the exchange (0.5% per day for shortfalls up to ₹1 lakh, 1% per day for higher amounts), which are passed on to the client. Repeated margin shortfalls can also result in restrictions on the trading account.

Margin calls are typically avoided by leaving headroom on available margin. A buffer of 20-30% above the required margin absorbs adverse price moves before they trigger a shortfall. Stop-loss orders that auto-exit positions before they generate large losses provide a second layer of defence.