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How will peak margin affect my margins for trading in the Cash Segment

01 Jun 2023

Peak margins refer to higher margin requirements imposed by stock exchanges during specific periods of high market volatility or concentration risk. These increased margins are intended to ensure sufficient capital is available to cover potential losses during such periods.

If peak margins are imposed in the cash segment, it means you will be required to allocate additional funds as a margin while trading stocks.

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Let’s see how they affect different kinds of transactions!

Intraday transactions: These exposures are restricted up to a max amount of 5x. Earlier, we used to offer up to 6.6666x on a few types of stocks but now the maximum exposure is restricted to 5x.

Delivery Sell transactions: We release 80% of the sell value to take a derivative position or to purchase any other stock for that day. This implies that if you sell a stock worth INR 120,000, then the amount released would be 96,000 as a margin. You can use this amount to purchase any other stock. From the next day onwards, i.e. T+1, 100% of the sales value would become available for trading purposes.

Buying back delivery sell transactions on the same day: 

When you sell stocks in the cash segment and we release an 80% margin, it is based on the assumption that we will be able to deliver these shares to the exchange in the early pay-in process.

1. If you don't take any additional positions using the margin released from the sale, there will be no change, and you can buy back the shares without any issues.

2. However, if you use the released margin to take further positions in other stocks and either hold those positions or square them off later in the day, and if you also buy back the original shares sold (for which the margin was released), it will attract a margin penalty. This is because there won't be a sell obligation, and we won't be able to perform an early payment into the exchange.

In simpler terms, if you sell stocks and we release margin, you can buy back the shares without any penalty if you don't use that margin for other trades. But if you use the released margin for other trades and also buy back the original shares, it will result in a margin penalty because we won't be able to fulfil the sell obligation and perform early pay into the exchange.

Peak margins can significantly impact the trading margins in the following manner:

  1. Increase in margin requirements: Peak margins typically result in higher margin rates, meaning you will need to allocate more funds as collateral for your trades. This can reduce the available margin for trading or require you to inject additional capital to meet the new margin requirements.
  2. Impact on trading positions: Higher margin requirements can limit your ability to take larger positions or trade with the same level of leverage. It may be required to adjust your trading strategy or reduce position sizes to accommodate the increased margin demands.
  3. Risk management considerations: Peak margin periods often coincide with higher market volatility, leading to increased market risk. Traders need to be mindful of the potential impact on their positions and adjust risk management strategies as per the situation. This may include setting stringent stop-loss orders, implementing stricter position sizing rules, or adopting a more conservative approach to trading.

Conclusion

As we have seen, peak margins are the high margin requirements in different kinds of transactions, such as intraday, delivery sell, buying back delivery sell transactions, etc.

To understand the specific implications for your trading, it's important to keep abreast of any communications or announcements from us regarding peak margins. This information will provide detailed insights into the revised margin requirements and any potential impact on your trading margins.

 

 

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