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explanation of margin payments required! |
grizzlybull
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Joined: 26 Sep 2010
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Post: #1  Posted: Thu Jul 14, 2011 8:26 am Post subject: explanation of margin payments required! |
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say we pay a margin for the futures contract.
Suppose we pay 40,000, will we have to pay additional margin if the price of the security goes up or goes down?
thanks. |
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vinay28
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Joined: 24 Dec 2010
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| Post: #2 Posted: Thu Jul 14, 2011 9:04 am Post subject: |
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In general, if you have bought, you have to pay a certain % of the difference in price, less reduction in margin, if price goes down. If you have sold, you have to pay a certain % of the difference in price, plus increase in margin, if price goes up. Is this what you wanted to know?
This does not apply to calls or puts because they are like delivery |
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grizzlybull
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Joined: 26 Sep 2010
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| Post: #3 Posted: Thu Jul 14, 2011 10:28 am Post subject: |
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| vinay28 wrote: | In general, if you have bought, you have to pay a certain % of the difference in price, less reduction in margin, if price goes down. If you have sold, you have to pay a certain % of the difference in price, plus increase in margin, if price goes up. Is this what you wanted to know?
This does not apply to calls or puts because they are like delivery |
yes, I wanted to know if you have to pay additional margin when you have bought and the price goes up, but based on your answer obviously you don't.. btw by how much should the price go down in order to pay additional margin? |
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Arjun20
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Joined: 23 Jun 2011
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| Post: #4 Posted: Thu Jul 14, 2011 10:52 am Post subject: Re: explanation of margin payments required! |
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| grizzlybull wrote: | say we pay a margin for the futures contract.
Suppose we pay 40,000, will we have to pay additional margin if the price of the security goes up or goes down?
thanks. |
See GB,
There r 2 components of margins, Initial Margin and M2M(Mark to Market )Margin.
I will give u example with NF to explain this. Initial Margin(IM) reqd for NF today is 28280 (=10.1% of lot value). Now lets assume that u have BOUGHT 1NF today m'ning (positional buy, not intraday).U paid broker exactly 28280Rs. And in the afternoon NF closes 50points above ur purchase price. What does that mean? u had made profit of 50*50=2500 Rs. But now as Nifty had gone up over y'day, so revised IM will be calculated as 10.1% of today's closing lot value and it will be higher obviously as NIFTY has appreciated today. Lets say Revised IM after today's closing becomes 28780.
Then u will have to provide this IM diff ie.(28780-28280=500). As u have made profit of 2500 (it's positional trade and so that profit is on paper),
500 from that will go additional provisioning forIM and 2000 will be releasd and will get deposited to ur a/c.
On next trading day, suppose Nifty crashes 300 points over previous day's closing.U r still holding position. Now u have incurred Loss of 50*300=15000 Rs. As nifty has gone down today, IM wil decreaase today. Lets say it becomes 25780. Now ur IM earlier day was 28780 and to day requirement is only 25780 . So 3000 (diff in IM)is released .But u have incurred a Loss of 15000 today so (15000-3000=12000) will be deducted from ur account.
These +2000, -12000 figures are called M2M which gets DAILY added/deducted from ur a/c depending upon move.
I gave a hypothetical situation to understand working of the system. There can b some diff in actual practice. But underlying concept remains the same.
FOR options: if u BUY CALL/PUT , then ur sum at risk is limited to ur premium only. U don't have to pay-in additional amount (other than premium paid)even if trade goes in opposite direction. But if u SELL option, then u have to pay margin.( Don't ever go for selling an option until u get skilled 'Derivatives' trader).
Hope i gave 'preliminary' answer to ur question.
Experts, pls correct me if i have done any mistake
regards
Arjun |
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grizzlybull
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Joined: 26 Sep 2010
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| Post: #5 Posted: Thu Jul 14, 2011 10:59 am Post subject: |
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understood perfectly.. thanks arjun and vinay  |
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Arjun20
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Joined: 23 Jun 2011
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| Post: #6 Posted: Thu Jul 14, 2011 11:21 am Post subject: |
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| grizzlybull wrote: | | understood perfectly.. thanks arjun and vinay |
I Will send u mail.it will give u weebsites wher u can see IM of equity as well as commo also. |
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