Margin trading refers to the practice of using borrowed funds from a broker to trade a financial asset, which becomes the collateral for the loan from the broker. Traders are allowed to buy stocks by paying a marginal amount of the actual value.
Margin trading can be considered as leveraging positions by traders in the market either with cash or security. The margin can be settled later when traders square off positions.
In order to avail the margin trading facility (MTF), traders need to have a margin account with the broker. The margin varies across brokerages. Traders need to pay a certain sum (minimum) at the time of opening the MTF account. At the same time, they are required to maintain a minimum balance at all times. An interest rate is charged by the broker on the amount funded. In case he fails to maintain the minimum balance, his trade gets squared off.
How is peak margin for trades calculated
Akhil Nallamuthu
BL Research Bureau |
Updated on
May 01, 2021
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To trade in cash market or derivatives market, one should have a minimum amount of money to initiate trades, and this is called margin. Peak margin is the highest margin that a market participant should maintain on a day.
The types of margin in cash and derivatives segment include VaR (value at risk) margin, ELM (extreme loss margin), SPAN (standard portfolio analysis of risk) margin and exposure margin. There are other margins such as ad-hoc margin and MTM (mark-to-market) margin.
To initiate trade in a futures contract, the minimum amount of margin required is SPAN plus exposure margin. For instance, you buy one lot Nifty 50 futures contract, the margin requirement would be approximately ₹1.6 lakh (SPAN margin of ₹1.38 lakh and exposure margin of ₹22,000). In earlier mechanism, brokers could allow intra-day trades by collecting less margin say, ₹1 lakh by offe
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Wisdom Capital, an online marketing and stockbroking services provider, has reappealed in Delhi High Court in the connection with the Peak Margin SEBI Circular- one of the many landmark decisions taken by SEBI in 2020 that have bordered on, for the lack of words, discomfiture. As a result, Wisdom Capital has requested a time bound early hearing from the courts citing that intentional delay in filing a response may defeat the very purpose of the writ petition. In the hope that all is not lost for the investors and financial intermediaries, the company moved the court as there is no response, even after four weeks as ordered by the court, to the notification sent by court to SEBI and Union of India (see writ petition civil no. 9698 of 2020).