Is the margin requirement for overnight and intraday positions same?

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Short Answer

The margin required for executing intraday trades in futures and options is lower when compared to positional trades. To trade in equity the margin requirement for intraday is 20 to 40%, whereas, for CNC trades, it's 100%.

Detailed Answer

What is Margin requirement?

Margin requirement is the total amount of funds or rather cash, required to take a position. Margin also means the total funds sanctioned by the broker that includes the cash and collateral balance. Collateral includes the stock and bond securities that are pledged with the broker for additional margin.

To understand it even further, let’s assume you have Rs 10,000 in your brokerage account. And your broker allows you 10x leverage on all F&O trades (Futures & Options). This means your total margin available is 10,000 x 10 = 100,000.

In this case, if you take a position of Rs 50,000 you will only use 50% of your total available margin.

Difference in margin between intraday and positional positions?

Earlier, SEBI allowed brokers to offer additional leverage on overnight positions. This meant, there was a difference between the margin requirement in intraday positions and overnight positions.

However, before September 2021, you only had to present a part of the total value of your trade. The exact amount would vary from broker to broker, but you would have to pay an upfront margin of somewhere around 50-75%.

Whereas now (after September 2021), SEBI (Securities Exchange Board of India) has completely eliminated the margins allowed by brokers. This means you will have to pay 100% of the total value of the trade in the case of an overnight position.

Is the total margin required more for positional positions?

Trading securities includes 2 aspects. One of them is trading in Equity, and the other is trading in Derivatives which is Futures and Options.

Let’s see the total requirement of margin in both cases.

1. Equity

When it comes to Equity, you’ll inevitably have to carry forward your positions for more than 1 trading day with a CNC (Cash And Carry) order. CNC orders require a 100% upfront margin. This means if you want to purchase 20 shares of company ‘X’, which trades at Rs 100 per share. You’ll have to provide Rs 2,000 upfront from your account to take the position.

2. Futures & Options

Derivative products are already leveraged instruments, where you take a position with pre-existing leverage. On top of this, you can employ additional margin on intraday trades. For example, if you want to place an intraday buy order on a futures contract worth Rs 5,000. You can take up to 5x leverage on the trade. With a mere Rs 1,000, you will be able to take the same trade.

On the other hand, if you wish to carry forward the same position, you will have to fulfill the remaining margin or Rs 4,000 and then convert the position.

Tagged With: derivatives tradingequity tradingfutures tradingcollateralmargin money
Categories: Futures Trading
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