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 with the help of Margin Calculator 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.