How SPAN system works?

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SPAN - Standard protfolio analysis of Risk - is a methodoloy used by the exchanges to determine the risk and hence the margin required to buy/sell Futures and options, to ensure that risk is eliminated.

It is a very complex formulae, which calculates how much money should be taken from a person trading either futures or options to ensure that there is no risk to the broking firm and hence in turn the exchanges themselves.

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Hi There…What is the difference between SPAN Margin & Exposure Margin?
Also, what are the margin requirement of Huge Institutional Investors? they get an opportunity to execute trades with special lower margins or something??
Thanks! Lovin this forum!

SPAN is what the exchange says the minimum that a brokerage has to collect from a particular client. Exposure is something exchange says that has to be collected over and above the SPAN. Since the exposure is not fixed, institutional guys might get to trade only with SPAN margin as there might be a relationship from before and the brokerage is sure that in case margin goes below SPAN it will be made good before end of day. But as you would have already seen, exposure margin is comparatively a small fraction of the total margin required.