Earning interest through idle funds in a customer’s account isn’t a new thing. Check the ‘Float Income’ part in this Zerodha article.
I think the backend process may not take place exactly the way I depicted but in one way or other it forms the crux of float income. @shubhs9 may clarify on the backend movement of funds exactly.
Hey. Just wanted to know. Don’t you keep extra funds at the end of the day?
Because what I used to do before is keep 8 to 10 percent extra in my account just to meet any changes that are made at the end of the day in the margins. I have never gone negative overnight.
Now what I do is I keep only 4 to 6 percent extra. So ultimately it’s the same for me.
Everybody would love to use entire margin overnight. Just wanted to know from you how do you get the exact margin that would be required at the end of the day?
The revenue hit we are taking currently in terms of margin penalty that we are paying out of our pocket, if not for the additional brokerage, we would be losing significantly. It would have forced us to increase the brokerage across the board. Currently, we are trying to reason out with the regulator on these penalties, and hopefully, something will happen about that. Otherwise, this is, for now, our only current option. Not just us but any broker who is not passing the penalty.
The other thing we could have done is to square off positions instantly when margins go negative, but this isn’t ideal.
Hopefully the regulations change on this.
can you share the ticket number with me on DM?
3 Likes
Most of our large customers who trade derivatives park liquid funds or stocks for margin. So there isn’t any float as such on that. If you are buying options, there isn’t a concept of margin as all the money gets debited.
A broker is allowed to charge any additional margin. This was what the regulator suggested when we first met them with a representation on the penalty.
4 Likes
They generally update the margin at 2 pm, so you see where the the market is at 2 pm, and then adjust accordingly for EOD.
Suppose the market’s at 18000 at 2 pm & you have a short straddle of 1000 quantities of 17000 PE & 19000 CE. Around closing, it rises to 18200. The CE side margin would have risen & PE side would have decreased. So, you can square off 100 quantity of CE & maybe add 50 on PE side.
It’s more of an approximation & takes a bit of time to get it right.
But an intraday margin change is a bit imp. for this & this is why I keep on harping about it on this thread, but to no avail…
It was 15% of the total revenue couple of years back, so not a small amount. And this was when you used to block the exchange-mandated margin, so it’d be higher now.
Though my point was more about the customer losing out than you gaining something…
The word ‘suggested’ makes me think it’s not sacrosanct but in a grey area then…
1 Like
2.30 pm
As far as I know, they update at 2 pm, but it takes time to reflect on our accounts (around 2:35 pm)…
Yeah. Am aware of these things. I too adjust the positions depending on the margin that’s there at 3 o clock. But am saying the final margin changes more than 5 percent sometimes. This usually happens when there is fall of more than 2 percent on nifty. May be this is because my collateral value has fallen on that day. Any idea when is collateral margin updated. ? Is that also updated at 2.30 or only on daily basis?
To avoid such things I used to keep around 8 percent before. Now 4 percent. So for me personally this additional 4 percent isn’t making a difference.
Would suggest adjusting the position on the basis of the market level at 2 pm, should see some improvement.
Yeah, when there’s heavy market movement, I leave extra margin too.
I think collateral margin gets updated only on daily basis, after EOD.
One of the reasons I stuck with Zerodha was that they are well-funded, or at least claim to be, so you expect that things will remain the same when regulations change. Anyway, I’d almost definitely shift away, at least partially, if not fully. Can have the best systems in place but what’s the use if you aren’t allowed to use your funds…
Wouldn’t it be the same? Since there is no margin update after 2 or 2.30.
Yeahhh. Would want a clarification on this. @ShubhS9
For now I am not having many complaints against zerodha. Only thing I need is instant unpledge and sell.
Shifting to a different broker is a huge pain for me. I will easily take 2 to 3 months. But having said that, the day I find somebody better, I will definitely shift.
For EOD (say 3:20pm) positions, you have to adjust on the basis of the market movement post 2 pm, not the margin change.
I’ve edited my earlier response, hopefully it explains in a better way now…
1 Like
Yes, the collateral margins are calculated based on previous day’s closing price of the security. Explained here.
Yes. Got it now. Since I have 50percent of my margin coming from equities I think it’s better for me to keep slightly higher margin when markets are falling.
Thanks anyways for your explanation. It may help me in better utilisation of my margin.
They do this lets take another example if i take credit spread n my max risk is 5k for cash settled option .rule is to collect 15k,in the name of systemic risk. they have mend rules such a way after 2018 to collect exposure magin on fixed loss strategy come what may happen.
Most likely the exposure margin in credit spread is converted in some sort of FD.
Just imagine how are brokers earning
Kotak has no brokerage plans for fno
Mirai asset has plan pay 1k then no brokerage
This no brokerage thing is like elephant teeth for showing is diff n for eating is diff
I tried searching committee report/recommendation by stakeholders report to SEBI but no avail
Earlier it was recommended by sebi to collect exposure magin but not mandatory so many brokers would not charge exposure margin to some of its privileged client
I am tired n pissed now with this crappy rat race going on among brokers as retail are suffering the most due to this brokers
First it was karvy scandal
N this exposure margin shit on fully hedged cash settled option trades
N upon that now to use any tools pay for option analysis,do algo pay monthly fees
Increase brokerage to 40 a leg n finish all this non sense
Sebi is also pissed of with non sense brokers are doing again n again so it is planning to introduce ASBA for secondary market,n among other thing made mandatory to settle client account as brokers were misusing clients money in that also there were mismatched funds
Float income is mainly when the funds are not utilized. Charging a 3 to 4% higher margin does more harm than good in revenue because lesser margins typically mean more trades.
Nope, there is nothing grey about this. Regulations only say minimum margin; a broker can charge any maximum margin based on their risk management policy.
1 Like
The customer may get a peak margin shortfall in the day, but since the new rule says the broker cannot pass on that penalty - then i believe there should be a loop hole.
CustomerA: total balance 10 lakhs, peak shortfall = 1 lakhs
CustomerB: total balance 20 lakhs, margin used in the day = 12 lakhs
As per the clearing corporation, customerA was having a shortfall, but customerB had adequate margin.
From the broker’s perspective - customerA+customerB total peak margin is well within limits.
So will the CC now charge the broker?
The penalty is at the customer level and not the gross overall level. If it were a gross level, there wouldn’t be a penalty since broker terminals are shut down when on a gross basis, margin utilization is more than 90% of total funds with a clearing corporation.
2 Likes
So if passing on the penalty to customer is banned - who actually takes that burden?