Derivatives

Decoding margin money for futures trade

Akhil Nallamuthu BL Research Bureau | Updated on September 25, 2021

SEBI has made it mandatory to hold margin money for trading. In this scenario, it will be helpful to small investors if you can say as to how much should be kept aside as margin money.

Vijaykumar Shingade

The margin (either as funds or securities or combination of both) one should ideally maintain depends upon how one trades. For instance, consider a trader who plans to initiate intraday trade in Nifty futures. Here, the upfront margin requirement to initiate trade will be approximately ₹1.1 lakh. In addition to this, on should have enough margin to adjust for possible mark-to-market (MTM) losses. The daily average true range (ATR) indicator indicates that Nifty 50 moves 160 points a day (average of last 14 days). So, a trader should know that the index can possibly go 160 points against the direction of this trade. To give more room, one can take it as 200 points. Should such a move happen, the Nifty futures trade would be at a loss of ₹10,000 (200 points multiplied by lot size of the contract i.e., 50). So, a trader who plans to trade one lot of Nifty futures intraday should at last maintain margin of ₹1.2 lakh i.e., upfront margin of ₹1.1 lakh plus the MTM margin of ₹10,000. If the trader plans to hold for one week, the weekly ATR of about 430 points means one should maintain ₹21,500 as margin in addition to the upfront margin, taking the ideal margin to ₹1.3 lakh. Same can be applied in cash segment.

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Published on September 25, 2021

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