In the cash sector, you pay the whole share price and acquire the shares, but in derivatives, you just pay a portion of the share price or margins when you buy. All of the scrips have varying margins. As a result, it is preferable to calculate needed margins ahead of time and ensure that the necessary funds are accessible. According to the recent SEBI circular, a broker must collect the whole SPAN (Standardised Portfolio Analysis of Risk) + Exposure margin from the customer to carry forward Futures and Options holdings to the next day.
The SPAN is designed to identify the entire risk that is present in the futures and options contracts held by each participant's portfolio. Three things most directly impact the value of an option at a particular moment in time in typical pricing models:
The value of futures and options held in the portfolio will alter when these circumstances change. Therefore, SPAN creates scenarios based on likely changes in underlying prices and volatility to predict the maximum loss a portfolio might incur from one day to the next. It then adjusts the profit margin (capital) needed to offset this one-day loss.
Margin calculators are quite helpful and vital since they help calculate the amount that must be deposited with the broker. Margin calculators use factors such as the brokerage firm's risk-taking capabilities, the money in the trading account, and the scrip's stock price, making margin computations more trustworthy. They may also be used to calculate the maximum amount that can be lost if the trade fails. Some margin calculators also allow you to determine the deal's value if the stock price rises. Whatever sort of calculator is required, the majority of brokerages provide their clients access to a variety of margin calculators, allowing the user to choose the calculator that is most suitable for them.
The main advantage of utilising a margin calculator is that it ensures that the right amount of cash is deposited with the brokerage. The margin requirement of a transaction is the amount that must be deposited with the brokerage, which is determined using the margin calculator. Using a margin calculator also helps in avoiding the margin call, which is a warning that the trader has over their margin requirement. As a result, the following are some of the benefits of employing a margin calculator:
The total margin required for a transaction is the sum of the SPAN and Exposure margins.
When we add an option Position, we also get Option Premium.
SPAN Margin is the minimum margin necessary to initiate a futures contract (both buy and sell) and to write/sell an option position. The exchange requires this.
The Broker's Exposure Margin is the margin set aside to offset MTM losses. This is in addition to the SPAN Margin. Exchanges determine the SPAN and Exposure margins. So, while starting a futures or option sell transaction, the customer must comply with the initial margin requirement. A Margin Calculator assists you in calculating these amounts so that a client may determine the Total Margin Required before completing the deal. The exchange has prohibited the SPAN + Exposure Margin, generally known as the Initial Margin.
Purchasing an option position necessitates paying the whole price rather than margins. While selling or writing an option, he must pay Margins. When you add a purchase option position, you may get margin advantages on futures and short option contracts, as shown in the Margin Calculator.
In India, a Margin Calculator is a tool that allows you to determine full margin needs for option writing/shorting or multi-leg F&O strategies when trading equities, F&O, commodities, and currency. The new SEBI circular requires brokers to collect the whole SPAN + Exposure margin to carry forward Futures and Options transactions to the next day. So check your margins to prevent a margin penalty and square off any open positions from now.
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