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I hope you know by now that the margin blocked for Intraday trades is increasing in a phased manner from Dec 2020 and will go on till September 2021.
This circular was put out by SEBI in Jul 20, 2020. It basically says to increase intraday margins in a phased manner from Dec 2020 to Sep 2021.
Here is the details of the margin increase in 4 phases. The new changes will take effect in 4 phases:
Phase 1 (Dec 2020 to Feb 2021) – The minimum margin the broker has to collect while entering a position is 25% of the prescribed limit.
Phase 2 (Mar 2021 to May 2021) – (As on the date this post was written – we are in this phase now) The minimum margin the broker has to collect while entering a position is 50% of the prescribed limit.
Phase 3 (Jun 2021 to Aug 2021) – The minimum margin the broker has to collect while entering a position is 75% of the prescribed limit.
Phase 4 (Sep 2021 onward) – The minimum margin the broker has to collect while entering a position is 100% of the prescribed limit.
So what’s the bad news?
For Future and Options (sellers), for intraday trades under MIS, from 01-Sep-21 onward, all brokers will block 100% of the margin that is blocked now (Mar 2021) for NRML (overnight) positions. So technically as far as margin blocked is concerned there will be NO difference between MIS and NRML trades for F&O positions.
However for equity trading, 50% on applicable VAR + ELM or 20% of trade value whichever is lower will be blocked for equity intraday trading. Example: If you trade stock worth 5 lakhs, your broker will block 20% of 5 lakhs, which is 1 lakh. This means you will get 5x leverage, not more. Gone are the days when we used to get 10x or more leverage. 🙁
What you can do?
If you are good at intraday trading just bring more money to your account. Your returns in percentage terms will reduce but you will still make some money.
If you are average at intraday trading, want to practice more and be perfect, then your only option will be to hedge the trade to get a reduced margin.
The benefit of a hedged trade is that suppose your position is at a loss at 3 pm – you can convert it to an overnight position (MIS to NRML) and wait for the next few days to make a profit. You will be allowed to convert MIS positions to CNC/NRML only if you have sufficient margins in your account. Since from Sep 01, 2021, in the MIS positions margin blocked will be the same as NRML, you can convert them to NRML whenever you want.
In a hedged trade, margin blocked is less, so you can easily convert them to NRML and when you get some experience you can trade more lots.
Here is an example:
Suppose today is Wednesday, 01-Sep-2021.
The intraday 100% margin block rule is in place.
Nifty is at 16000 (assumption).
A trader assumes it’s going up and takes this debit spread.
Trade 1) SELL NIFTY 16200 CE SEP21
Once this trade is completed margin blocked will be above 1 lakh approx. in MIS or NRML. (Assuming its MIS)
Trade 2) BUY NIFTY 16100 CE SEP21 (Assuming this is also MIS)
Now due to the hedged margin rule suddenly margin reduces to 40,000 approx. or less.
I hope by this time you have understood how to reduce the margins on intraday options trade. Note that it’s an intraday trade and one option is sold but hedged and margin blocked is 40000, much less than the intraday 100% margin block rule as on Wednesday, 01-Sep-2021.
In my Nifty and Bank Nifty courses all 7 options and futures strategies are 100% hedged, so for all the strategies margin blocked has reduced (not increased) since the new margin rule has come into effect.
Click here to enroll for the course.
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