Capital markets are dynamic places catering to a wide variety of investors. There multiple segments and several asset classes for investors to choose from. One can invest in the cash segment or choose to trade in the derivatives segment. All the major trading segments have the option of margin trading, which provides investors access to additional capital. Margin trading increases the quantum of profit and losses. Since many investors avail margin facility and trade in multiple segments, keeping a track of the finances becomes slightly tricky. To improve transparency and help investors keep track of their finances, stockbrokers provide a daily margin statement every day.
What is the daily margin statement?
The daily margin statement is a passworaily margin statement is mandatory as per the exchange regulations. The statement informs the client about the utilisation of the available margin. It gives an idea of the free margin available in the account to take new positions without incurring a penalty. The daily margin statement is prepared in a definite format prescribed by the Securities and Exchange Board of India. A definite format ensures uniformity and ease of understanding. If you trade across exchad-protected document that is sent to every client before the end of the trading day. Sending the dnges, the daily margin statement will contain data from all the exchanges. In the case of trading across segments, the daily margin statement will have data from all the segments. For instance, if you trade on the National Stock Exchange, the daily margin statement of NSE will have the data from equity cash along with data from the equity derivatives segment. The daily margin statement will have data from both segments.
How to interpret a daily margin statement?
The market regulator has prescribed a format for the daily margin statement and hence stockbrokers have to compulsorily include certain details.
Funds: The funds’ section contains the closing balance after reversing the credit and debit on the trading day. For the data pertaining to futures and options and CDS, the credit and debit on the T day are reversed while in the case of the cash segment, the credit and debit on T day and T-1 day are reversed. According to the terminology used by stockbrokers, T day is the trading day. For instance, if you have executed the trades on Sep 7, the trading day for the daily margin statement will be Sep 7. If you submit a cheque on the trading day, the amount is likely to be reflected in the daily margin statement. However, most brokers do not include the amount of the cheque in the daily margin statement until the cheque is cleared by the bank.
Value of securities after haircut: This section contains the total value of securities after an appropriate haircut. The margin received after pledging holdings is included in the section. Such securities are withheld by the broker. The quantum of haircut is not less than the VAR margin rate. The VAR margin rate is decided by the broker and it is modified according to the risk management policy of the broker.
Bank guarantees/FDR: The section contains the details of the initial margin available after providing bank guarantee or fixed deposit. In the daily margin statement, it is generally given against the equity derivatives or currency segments.
Any other approved form of margin: To trade in the equity derivatives or currency derivatives segment, it is compulsory to provide an initial margin.
Total upfront margin: The section contains the sum of the total SPAN, exposure margin and option premium buy blocked for positions taken by the investor.
MTM: Any mark to market losses are showed in the MTM section.
Total requirement: The section shows the complete amount blocked by the exchange for your positions. The total requirement is provided for each trade segment.
Margin status: The section shows the balance available for taking fresh positions on the next trading day.
The daily margin report is an important document that provides a clear picture of the daily finances to the trader. Margin facility provided by brokers has become a popular tool for traders to amplify transactions. The importance of daily margin statement has grown with the increased use of margin trading.