Decode margin money for futures trading

SEBI has made it mandatory to hold margin money for trading. In this scenario, it will be helpful for small investors if you can tell how much should be set aside as margin money.

Vijaykumar Shingade

The margin (either in the form of funds or securities or a combination of the two) that one should ideally maintain depends on how one trades. For example, consider a trader who is considering initiating intraday trading of Nifty futures. Here, the initial margin required to start the trade will be around 1.1 lakh. In addition to that, one should have sufficient margin to adapt to possible mark-to-market (MTM) losses. The Daily Average Actual Range (ATR) indicator shows that Nifty 50 is moving 160 points per day (average of the last 14 days). So, a trader should know that the index can possibly go 160 points against the direction of this trade. To give more space, we can take it as 200 points. If such a move occurred, the Nifty futures trade would be at a loss of 10,000 (200 points multiplied by the lot size of the contract, ie 50). So, a trader who plans to trade a lot of intraday Nifty futures should finally maintain a margin of 1.2 lakh, that is, an initial margin of ₹ 1.1 lakh plus the MTM margin of 10,000. If the trader plans to hold for a week, the weekly ATR of around 430 points means that one should maintain a margin of 21,500 on top of the initial margin, bringing the ideal margin to 1.3 lakh . The same can be applied in the cash segment.

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