Understanding all about Futures and Options margin calculation - Motilal Oswal
Understanding all about Futures and Options margin calculation - Motilal Oswal

Understanding all about Futures and Options margin calculation

 What is the margin payable on one lot of futures? Frankly, it will depend on a lot of factors. For example, whether the contract is for near month, mid-month or far month will make an impact. Secondly, the margins will also depend on whether the stock in question is volatile or flat. A volatile stock will attract more margins. Thirdly, margins are also impacted by whether the trade is normal trade, intraday (MIS) trade or cover order. Let us simulate different situations and see the impact of margin simulation in all these situations. Let us also understand how to calculate initial margins for futures and types of margins in future contract with distinct futures margin examples. Here is how to go about it.

Buying Nifty near month (Nov-18) futures @ 10687.25

The margin simulation of the Nifty is same irrespective of whether you are going long or short on the Nifty. Nifty currently has a lot size of 75 units so the minimum lot value will be Rs.801,544/-, which is the notional value of the contract. Let us check the margining below.

 

Particulars

Value

Particulars

Value

Contract

Nifty Futures

Normal Margin

Rs.76,115

Near month contract

Nov 2018

How many lots can I buy?

6 lots

Margin Available

Rs.5.00 lakh

Intraday (MIS) margin

Rs.22,834

Nifty Price

10,687.25

How many lots can I buy?

21 lots

Lot Size

75 units

Cover Order  margin

Rs.8,015

Value of one lot

Rs.8.02 lakhs

How many lots can I buy?

62 lots


 

In the above case, the Normal Margin is a combination of VAR margin and the Extreme Loss Margins (ELM). The ELM margin is also known as the exposure margin. IN the past, only the VAR margin was mandatory but now SEBI has made it mandatory to collect the VAR and ELM margins as part of the normal margins. However, if you want to pay lower margins, then you can opt for an intraday trade. This intraday has to strictly closed intraday and if the trader does not close the trade then the broker RMS will close the trade automatically around 3.15 pm. If you want still more leverage, then you can opt for Cover Order. In a cover order, you put the stop loss as part of the order and in that case since your risk is limited still further, you get higher leverage. In the above instance, the trader can move from buying just 6 lots in normal order to buying 21 lots in the intraday order and right up to 62 lots in case of cover order. Of course, while the Normal margins are fixed by the exchange, the amount of leverage to be given on intraday orders and on cover orders is something the broker has the discretion to decide.


Buying Bank Nifty Futures Mid-month (Dec-18) futures @ 26,324.10

The margin simulation of the Bank Nifty is also same irrespective of whether you are going long or short on the Bank Nifty. Bank Nifty currently has a lot size of 20 units so the minimum lot value will be Rs.5.26 lakhs, which is the notional value of the contract. Let us check the margining below.

 

Particulars

Value

Particulars

Value

Contract

Bank Nifty Futures

Normal Margin

Rs.50,197

Mid month contract

Dec 2018

How many lots can I buy?

9 lots

Margin Available

Rs.5.00 lakh

Intraday (MIS) margin

Rs.15,059

Bank Nifty Price

26,324.10

How many lots can I buy?

33 lots

Lot Size

20 units

Cover Order  margin

Rs.5,265

Value of one lot

Rs.5.26 lakhs

How many lots can I buy?

94 lots



In the case of Bank Nifty, the leverage potential is huge since one can place a cover order and buy up to 94 lots with a margin of just Rs.5 lakhs. Of course, futures are leveraged and just as profits can multiply even the losses can multiply.


Buying ICICI Bank Futures Near month (Nov-18) futures @ 367.40

The margin simulation of stock futures in the form of ICICI Bank is also same irrespective of whether you are long or short. ICICI Bank has a lot size of 2750 units so the minimum lot value will be Rs.10.10 lakhs, which is the notional value of the contract. Let us check the margining below.


 

 

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