Q. How to Check Futures and Options (F&O) Margins?

I am guessing that you know about the futures and options market and their role in the stock market.

If you don’t know then take the knowledge about this market as it is necessary to know about this as a trader or the investor.

In this market, they also provide margins for purchasing the futures and options in the stock market.

Through this article you will understand about “How to Check Futures and Options (F&O) Margins?”

Ans. At the start of trading in the futures and options market you need to deposit some margin that is called as initial margin with your broker.

The main purpose of this margin is to protect the broker if in case the buyer or the seller makes losses in the dealing of futures and options due to the price volatility so this is the reason why an initial margin is needed to be deposited to the broker.

The margins differs from indexes to indexes and also from shares to shares.

So, to figure out the margins for the F&O market you will need an F&O Calculator for knowing the margin while doing trading in equity or index or in F&O whatever you want to make the trades.

 Since you know that the stock markets are volatile and for that to cover this risk of volatility margins are collected from both the buyer and seller in a particular trading or investing.

So, you are also curious right about knowing that how F&O Margin works?

Don’t worry we will discuss about this in brief regarding the margins.

Broadly speaking there are two types margins that are collected by the broker from the buyer and the seller, they are:

  • SPAN Margin
  • ELM Margin
  • Value At Risk Margin

If you don’t know about this margins, then don’t worry we will see about this in brief about the meaning and how it works in F&O or any of the segments in stock market.

Let us start with knowing the initial margin for the future trading.

How Initial Margins Works in Future Trading?

The initial margins are charged to the trading account by making an assumption that you are going to carry the position until the expiry of the contract.

They are also known as forward margins.

These margin are further classified into two division:

  • SPAN Margin based on the statistical concept known as Value at Risk
  • ELM Margin

Both the margins are mandatory to be deposited before taking the trades.

The initial margins should be high enough to cover the loss of your position.

There is always a rule for that, greater the volatility of the stock, greater the risk associated with it and hence greater should be the initial margins.

Now, take a look about the classification of the Margins:

SPAN Margin

SPAN Stands for Standardized Portfolio Analysis of Risk.

This type of margin calculator uses the complex algorithms for determining the margins.

This calculator defines about that the initial margin is equal to the highest loss a portfolio would suffer under several scenarios.

These margins are revised six times a day, so the calculator will give several results depending on the time of day.

Now, that you have also know that SPAN margins are calculated on the basis of statistical concept Value at Risk.

So, now just learn about this concepts to know what actually it is.

Value at Risk Margin

This margin defines and gives the estimates of the probability of loss of value of an asset based on the statistical analysis of the historical price trends and on the volatility.

The NSE F&O margin calculator includes this margin Value at Risk.

Margins will based on whether the securities are listed by Group I, Group II or III.

There is also an Index VaR for the various indices.

ELM Margin

ELM stands for Extreme Loss Margin.

This is based on the standard deviation of the daily logarithmic returns of the security prices based on the last six months.

This is always calculated at the end of each month by taking the rolling data of the past six months.

The result is useful for the consecutive of the next month.

So, this was all about the different margins applicable in the F&O Market and the margins used for it.

You can calculate the margins online as you can find it anywhere and also on the NSE website you will find this facility for checking the margins of F&O Market.

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Author

Prashant Raut is a successful professional stock market trader. He is an expert in understanding and analyzing technical charts. With his 8 years of experience and expertise, he delivers webinars on stock market concepts. He also bags the ‘Golden Book of World Record’ for having the highest number of people attending his webinar on share trading.