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Note: From 2nd July 2018 onwards, SEBI has made it mandatory for both SPAN and exposure margin to be blocked in order to take and carry forward an overnight position. If it isn’t, margin penalty will be applicable. Click here for the circular from NSE.
Your broker will now block both Span & Exposure margin. In some parts of India some brokers used to block only Span margin, so this rule was made. Now every derivative trader is on the same platform – earlier some traders had an advantage of paying less and making more but losing the same. Now they will also have to pay the same money (margin block) to trade futures and sell options.
But according to the new rule if your account is going in the red (loss a.k.a MTM (Mark To Margin)) then at end of day your broker will block more money to make sure FULL Span & Exposure margin is blocked again for the position to continue overnight. But if your account does not have the money then you may have to pay a margin short penalty, and the risk management team may close the trade without informing you.
Whatever new rules are being made they are forcing retail traders to either hedge their positions in derivative trading (which DIIs and HIIs always do) or stay out of the stock markets. Hedging is getting more important than ever. First lot size increase, then full SPAN and Exposure margin and then from Oct, 18 trading allowed from 9.15 to 11.55 pm. Without hedging you will not be able to survive in the markets for long.
Margin Short Penalty Explained 2018
As per SEBI regulations, margin shortage penalty is levied on overnight positions held in the trading account without sufficient margin. Please note that both SPAN and Exposure margin will be taken into consideration. Earlier only SPAN margin was taken into consideration for margin short penalty, but from July 2018 onward, both SPAN and Exposure margin will be taken into consideration.
Note that For intraday positions (day trading) shortfall margin penalty is not levied. It is levied on Equity Derivatives, Currency Derivatives, and Commodity derivatives segments. (For currency derivatives both the SPAN and exposure margins have to be maintained, if not margin penalties will be applicable).
Both SPAN & Exposure margin will be blocked.
Let say you buy a future and your broker blocks SPAN & Exposure margin of 60,000.
Assuming its a NRML (overnight carry forward position) and by 3.15 pm your MTM is 3000. Now the system will check if your account has 3000 or not. Let say your account has 3000 – then fine – I think that money will also be blocked. What they are trying is that both SPAN & Exposure margin should be there in your account else you pay a fine.
Suppose there is a shortage of 3000 by the end of day, then either your RMS will close the trade or you have to pay a penalty.
But in some cases it gets difficult for the RMS to close the position as there may not be any liquidity – in that case you will have to pay a penalty.
Here is the margin short penalty:
For less than 1 Lakh margin Or less that 10% of applicable margin short per day, penalty charge of 0.5% on the short money per day.
For example your MTM is 5000 you will be charged 0.5% of 5000 that day which is Rs.25/-
Next day if you make a profit it does not matter – you will still pay the margin short penalty.
For margin short equals to Rs 1 lakh or more Or equals to 10% of applicable margin, penalty charge of 1.0% on the short money per day.
So What You Should Do?
Make sure you have extra money in your account so that you never pay a penalty. Keep at least Rs. 20,000 extra. And make sure your MTM never exceeds 50% of it – that is 10000. This will ensure you never pay a penalty and your broker does not close your tarde without informing you.
Or, hedge your trades so that MTM is ever is very small. Hedging is better because the trade NEVER sees a big loss ever. Hedge ensures the losses or MTM if at all are small. Since the whole account MTM will be taken into account the MTM money can be reduced to 5k for small accounts.
The Best way to keep your MTM (Mark To Margin) low in your trading account is to do hedging. If you hedge your position you may never see an MTM (Mark To Margin) over 5000 and you will escape the margin short penalty by just keeping 5000 extra in your account. This is huge money saved. You can learn hedging strategies in my course. For more information you can contact me.
Hedging also ensures you can sleep peacefully in the night without worrying what will happen to your account the next day when markets opens.
My course teaches proper hedging in options, futures and equities. Moving forward it is very difficult to survive in this market without hedging your trades. Call is yours.
You can do my course and learn proper hedging strategies to make a monthly income. Stop taking losses now.
Hope that helps – to save this margin short penalty keep at least Rs. 20,000 extra in you account and DO IT TODAY.
I am trying to save your money and do not want you to pay a margin short penalty.
You Can Read More On My Site
What you should do now1. If you have still not subscribed for my free 5 days course you can do by filling the form above. You will learn a lot about option trading.
2. If you are a new option trader, not much experienced and are making losses you can do my paid course. I recommend Nifty Conservative Option Course for beginners because it is easy to understand and easy to trade. Even a 18 year old young trader or a housewife can learn it and start trading from next day. It will help you to earn consistent monthly income without any software or speculation or stress or big risk. You will learn proper hedging strategies that works in any market condition.
3. If you are banknifty weekly options trader you can do my Bank Nifty Weekly Options & Futures Strategy Course. You will learn future and option hedging strategies that works in volatile market condition.
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Course fees: Click here to know the course fees.
Here is complete process of my course1. Once you pay I will send you the course materials for studying to your email.
2. You read and ask me questions via phone/whatsapp/email to clear doubts.
3. Then you start paper trading and still can ask me questions.
4. After about one month you can start trading.
5. Since doubts can come anytime the support will be there for one year.
Within one month you can start trading on your own. No need to depend on anyone once you are on your own.
If you have any question you can contact me.
You can read about me here and my trading mistakes here.
Dilip Shaw, Founder
INCOME DISCLAIMER: Any references in this site of income made by the traders are given to me by them either through Email or WhatsApp as a Thank You message. However every trade depends on the trader and his level of risk taking capability, knowledge and experience. Moreover stock market investments and trading are subject to market risks. Therefore there is no guarantee that everyone will achieve the same or similar results. My aim is to make you a better & disciplined trader with the stock trading and investing education and strategies you get from this website. Please note that I DO NOT give tips or advisory services by SMS, Email, or WhatsApp or any other form of social media. I strictly adhere to laws of my country. I only offer education on finance, investments on stock markets in the best possible way as much as I can through this website. Still, you must consult an authorized advisor or do thorough research before investing in any stock or derivative before trading any strategy given in this website. I am not responsible for any investment decision you take after reading any article given in this website. Knowledge is the only way to get success in stock markets. I try my best to give stock market investing and trading knowledge through the articles posted in this website. Thanks for visiting my website.