Using a margin calculator
One of the crucial things to understand while trading in futures and options is the concept of a margin. Before you start trading in F&O, you need to deposit what is called an initial margin with the broker. The aim is to protect the broker if the buyer or seller makes losses while trading in futures and options due to price volatility.
You can trade in multiples of the initial margin deposited. For example, if the margin is 10 percent, and you want to invest Rs 10 lakh in futures and options, you will need to deposit Rs 1 lakh with the broker. This multiple that you trade in is called leverage.
Of course, margins differ from index to index and share to share. So, you need an F&O calculator to figure out the margin to trade in the equity or index F&O that you want.
SPAN Margin calculator
Before using F&O margin calculator, it’s essential to know the types of margins like SPAN. SPAN is short for Standardized Portfolio Analysis of Risk. A SPAN margin calculator uses complex algorithms to determine margins. The SPAN margin calculator arrives at the initial margin equal to the highest loss a portfolio would suffer under several scenarios (around 16). SPAN margins are revised six times a day, so the calculator will give different results depending on the time of day.
Value at Risk margin
The NSE F&O margin calculator includes the value at Risk (VaR) margin. It estimates the probability of loss of value of an asset based on the statistical analysis of historical price trends and volatility. Margins will depend on whether securities are listed by Group I, Group II or III. There is also an Index VaR for the various indices.
Extreme Loss Margin
Then there is Extreme Loss Margin (ELM), which is higher of the two: five percent or 1.5 times the standard deviation of daily logarithmic returns of the security price in the last six months. It is calculated at the end of each month by taking the rolling data of the past six months. The result is applicable for the next month.
Angel One Margin Exposure
So, how much leverage exposure can you receive with Angel One margin facility? Leverage exposure is determined based on asset and trade type. It is usually a multiple of margin deposit. Say, for example, you can receive upto 48 times exposure in Equity and F&O segment on your margin amount.
One more point, from July 2018, SEBI has made it mandatory for all investors to block sufficient margin amount (SPAN+ Exposure) before placing an order. Failing to meet the threshold will attract a margin penalty.
Frequently Asked Question
SPAN margin is the requisite minimum margin to take a position in the futures market. SPAN stands for Standard Portfolio Analysis Of Risk. The SPAN margin is calculated using a complex algorithm that considers each position of derivatives in the worst possible one-day movement. To say it in simple words, it estimates the maximum loss an asset can incur in one day. Thankfully, the invention of the online margin calculator has made it easier to calculate the margin requirement in F&O. Margin is calculated using different methods for options buyers and sellers. The buyer needs to pay the premium to the seller, which is the minimum loss amount the seller could incur during the trade. For options sellers, the margin volume is based on the percentage of the total volume of the contract, dictated by the exchange. The margin helps traders to protect their interest in a futures contract against the adverse market movement. The total margin on a futures contract has two components – SPAN margin and exposure margin. The total margin value is the sum of the two margins. Use an online NSE F&O margin calculator to calculate margin requirements accurately. Futures margin is a percentage of the total contract value, calculated based on asset price volatility. Typically, the margin requirement on a futures contract varies between 3 and 12 percent of the contract value. The total margin of a futures contract is the summation of the SPAN margin and Exposure margin, where SAPN denotes portfolio risk. So the initial margin value equates the maximum loss that a portfolio can incur on a single day. You can calculate the margin requirement using the F&O calculator. You need to deposit a margin of Rs 30,000 to short NIFTY options, without hedging. If you use a hedging technique, the margin requirement will go further down. Calculate margin requirement using the NIFTY SPAN margin calculator. Online futures and options margin calculators are boon for traders. These amazing tools calculate margin requirements for futures and multi-leg F&O strategies accurately and in no time. Most of these calculators are based on a simple algorithm to operate on user input. For example, to calculate margin requirement on a futures contract, you will have to input value for, The margin requirement for options depends on the options strategy. Some strategies like covered call or covered put, have no margin requirement since the underlier is used as collateral. Also, buying options qualify as level 1 clearance, which doesn’t require margin. But if you are trading naked put options, which is level II clearance, you’d have to deposit margin with the broker. The margin requirement for selling uncovered option is 3 percent of the notional value. Now calculate the margin requirement using an NSE F&O margin calculator. FAQs
What is the SPAN margin in F&O?
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