Possible things that can go wrong with brokers giving higher limits in option writing


#1

right now i am trading with another broker who gives me five times more leverage in banknifty option writing and i used to take higher positions sizes on expiry day ,i want to know what are the possible things that can go wrong while doing it apart from trading point of view @nithin


#2

How much margin that broker require for shorting one lot of 20 share of bank nifty?


#3

For you as a trader, I guess you understand the risks that leverage brings. I can tell you for a fact that, lesser leverage means higher chances of profitability.

If a broker is giving such high leverage, the broker is taking a lot of risk on client’s behalf. If this broker has allowed short of BN puts with 5 times leverage and client has used all funds to take a position , this would mean that if banknifty moved more than around 1.5% against the client, the client will be out of money. If the client doesn’t make good of the losses, it is on the brokers head - it becomes bad debit. Imagine a lot of clients or a few big clients have huge positions running with such less margin. A black swan event can cause the broker to lose a lot of his own money, and if he doesn’t have his own money client money can get stuck while he goes bankrupt.


#4

i understand all the things and agree to it but sometimes i feel mostly on expiry day ,suppose an option contract of premium 5-6 rupyees have high chances to expire worthless but on margin front almost fifteen sixteen thousand is required to earn that premium thats where this limit helps me and congrats for becoming largest broker in india and also hope that i will switch to zerodha when i have whole margin for option writing because i really like kite flawless trade execution .


#5

U know about black swan events right? It can hit anytime.

Btw, I think in the not very distant future, brokers might have to stop giving the additional intraday leverage for futures and options positions. Regulators are trying to stop this as it increases the risk to the ecosystem.