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What is Daily Margin Statement and How to Understand It

20 Jul 2023

Introduction

Margins allow investors to access more funds for trading than they own. This significantly increases their buying power. Although investors can increase their earnings using margins, there is also potential for significant losses. The daily margin statement is a report stockbrokers offer investors to give them details on their margin account. It also ensures compliance with margin requirements set by the SEBI, the exchanges, and the broker. 

Margin requirements dictate the minimum amount that must be maintained in a margin account. This figure is based on the value of securities held and the leverage being utilised. If the investor fails to meet said requirements, they might be penalised, or their position can be forcefully liquidated.

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Why and how is the statement issued?

Stockbrokers are required by the Securities and Exchange Board of India (SEBI) to provide investors with a daily margin statement. It is done so that they are fully informed of their responsibilities and can prevent any forced liquidity or margin shortfall penalties. SEBI establishes guidelines and regulations regarding margin requirements, determining the minimum equity investors must maintain in their margin accounts. 

These requirements are designed to protect the interests of investors, maintain market stability, and lower the risks associated with margin trading. The stockbrokers also release the statement to ensure transparency. The statement is sent out electronically through email and is password-protected. The investors' PAN card details are required to access it.

How to read the statement?

The report contains essential information, such as the investor's funds, the margin required for held positions, the margin available for taking new positions, etc. The statement is issued in a format prescribed by the SEBI and must contain the following information.

  1. Funds - This is the amount in the account at the end of the trading day or T-Day. The transactions done on the trading day are reversed or not accounted for in the case of equity transactions. In the case of Futures and Options and CDS transactions, the transactions on T-Day and T-1-day are reversed.
  2. Value of securities after haircut - The securities in the account act as collateral, and the broker charges an appropriate haircut on them. If the investor decides to pledge securities, those are also included here.          
  3. Bank Guarantees - This section defines the initial margin available after the investor provides a bank guarantee.     
  4. Additional Margin - This section includes any other form of approved margins. For example, an initial margin is required to trade in equity or currency derivatives.          
  5. Total Upfront Margin -The investor must have a certain minimum amount of cash available in the account for margin trading. This amount is the total upfront margin, and it includes the SPAN and Extreme loss margins. The total upfront margin also includes the option premium required for the investor's trade.          
  6. Total Requirement: This is the amount of the exchange blocks to execute the investor's trades. This amount is designated separately for all the trade segments, i.e., F&O, equity, etc.
  7. Margin Status: The amount available for opening new positions.
  8. MTM Losses: This section deals with market-to-market losses.     

If an investor trades on multiple exchanges, then all the exchanges will be listed in the daily margin statement.

Conclusion

The daily margin statement is a document that helps investors understand relevant information regarding their margin account. It details the available margin and any obligations the investor might have to fulfil. The statement is essential for investors using margin as it helps them avoid any shortfall or liquidation of held assets.

It is also advantageous for keeping track of the used margins and margins available to a trader. These statements also help maintain transparency in the market between investors and brokers.

 

Related Articles: F&O Margin Penalty | How to Calculate Initial Margin for Futures Contracts | 

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