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Use the Margin calculator above to determine the corpus required to create a portfolio
To buy and sell derivatives like futures and options, you’re required to deposit a certain amount of money, known as the margin, with your stock broker. The margin acts as a sort of a security deposit and is used to cover the risk involved with trading in the derivative segment.
A margin calculator is a nifty online tool that’s designed to help you determine the amount of margin that you need to deposit to initiate a derivatives trade. With the help of such an online calculator, you can get to know what the margin requirements are before you initiate the trade. Doing this can also help you plan your trades and set your targets in a more informed manner.
Using a margin calculator is actually very easy. You simply need to enter a few key details of the derivatives trade that you wish to make, such as the following.
Upon entering the above details the margin calculator will instantly display an estimate of the amount of margin that you would have to deposit to initiate the trade.
A margin calculator uses a special algorithm to determine the amount of margin that you would need to deposit to cover the risk associated with a derivative trade. The algorithm takes into account multiple factors to estimate the risk of a derivative contract. Here’s a quick look at a few of them.• Current market price of the asset
The margin calculation for a derivative trade is done primarily based on the price of the asset. The higher the price of the asset, the more the amount of margin that you would be required to deposit.• Volatility of the asset
Volatility is a metric that measures the rate at which the price of the asset changes. The price of an asset that’s highly volatile tends to move rapidly and in an unpredictable manner. So, the higher the volatility of an asset, the greater the risk is likely to be, which subsequently leads to a higher margin requirement.• Time remaining till expiry
The closer you are to a derivative contract’s expiry date, the higher the margin requirements are likely to be. This is due to an increase in the volatility, which also increases the risk associated with the asset. To offset this increased risk, stock exchanges charge a higher margin.
When you use a margin calculator, all of these factors are taken into consideration to arrive at the amount of margin you would need to deposit. And as these values change, the margin requirements may also vary.
A margin calculator provides you with multiple benefits. Here’s an overview of some of the most important advantages that you get to enjoy by using this free tool.• You can quickly determine the feasibility of a trade
A margin calculator helps you ascertain the amount that you need to deposit as margin to initiate a trade. By getting to know what this amount is beforehand, you can instantly determine whether or not the trade is within your budget.• There is a great deal of transparency
When it comes to derivative trades, stock exchanges tend to charge a host of different margins such as the SPAN margin, the exposure margin and the extreme loss margin, among others. A margin calculator promotes transparency by giving you a breakdown of the different margin requirements for a trade.• You can plan your trades more efficiently
With a margin calculator, you can plan your trades in a more informed manner by ensuring that you have enough funds to cover the risk. This way, you can avoid premature closure of your positions due to margin shortfalls.
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Helps traders in calculating enough margins for any trade they wish to execute.
Add multiple scrips to get details at a time to know overall margin requirements.
Different scrips require different margins. Calculator helps to understand these beforehand!
SPAN is an acronym that stands for Standardized Portfolio Analysis of Risk. The SPAN margin is an upfront margin that’s collected by the stock brokers when initiating a derivative trade, on behalf of the stock exchange.
The SPAN margin is calculated by taking into account different scenarios to determine the maximum amount of loss that a position can suffer from in one trading day.
The margin requirements for a derivative trade are calculated by taking the following factors into consideration.
• The exchange on which you wish to trade
• The derivative segment, namely futures or options
• The type of trade, namely buy or sell
• The name of the company
• The last traded price of the company’s shares
• The number of derivatives being bought or sold
For delivery trades in the cash market, there’s no margin requirement. However, for intraday trades in the segment, the margin requirement has been set at 20% of the value of the trade.
The VaR margin is collected by a stock exchange to offset the probability of loss in an asset. For liquid securities, the margin is usually collected for one day, whereas for illiquid securities the VaR margin is collected for 3 days.
The Value at Risk is a figure that’s arrived at through statistical analysis of historical price and volatility data of an asset. It represents the probability of loss in the value of an asset.
The extreme loss margin is an additional margin amount that’s collected over and above the VaR margin. Stock exchanges collect extreme loss margins to offset the risk that arise out of exceptional situations that the VaR margins don’t typically cover.
The exposure margin is an additional margin that’s charged over and above the regular SPAN margin. It is collected by stock brokers at their own discretion, in order to offset the risk arising due to unpredictable market swings.
The net option premium is the total amount a trader will pay for selling one or more options and at the same time purchasing others.