The Hindu Business Line : Margin calls trigger fall

Stop-loss situation arises when the stock price falls below a prescribed limit and when this limit is triggered investors sell the stock in order to minimise losses.

Huge positions had been built up in the derivatives segment of NSE over the last few sessions. But an initial decline in stock prices today resulted in a cascading fall due to heavy selling.

Brokers resorted to selling as several clients failed to bring in additional margin in the derivatives segment after the initial fall in the market, said a derivative analyst.

Trading in derivatives segment mandates investors to pay upfront margin and if the investor fails to bring in the additional margin when the value of the derivatives contracts falls, brokers sell to avoid losses.

The sharp fall in stock prices on May 17 last year was also attributed to margin calls.

However, this time around the selling was mainly in the derivatives segment and not in the cash market.

Another major reason for today's decline is that FIIs were also selling in the derivatives segment. Brokers said FIIs are net sellers in stock futures after the expiry of December contracts, while they are net buyers in the cash segment, which shows that they are hedging their positions instead of making fresh purchases.

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