Hello,
I have read about futures and continuing to read as would be interested in trading futures in some time. If you guys could help me with my following queries.
Firstly I understood the Initial margin = span + exposure, where by span is the maintenance margin which must be present at all time, but then what is the use of the exposure margin? say span is 5000, and my cash balance at all time is above that, then why am i paying exposure margin? When does that come into picture?
Secondly, If span on 1st jan was 5000, and I had that much balance, and on 2nd jan due to fall in price,and due to m2m my overall cash balance falls to say 4500, how do i calculate the new span? The zerodha calculator would calculate the span in real time price basis ? Or where can i get the % of span required detail ? for each stock
Also as above, when my span is higher than my available cash balance, and i get a margin call, to pump in more money or else my position would be squared off. so how much time do i get to add the difference margin to be back to the desired span level.
Further, If on a day I make a profit which at the end of the day would be added to my cashbalance, and the required span then as per the new contract value is lesser than my available cash balance, would it be possible to utilize the differential money earned through increase in price and credited based on M2m to initiate new trade?
So for instance if span = 10,000 exposure margin =6000. so can i derive that my maximum loss on the future contract would be 10,000 in case price keeps falling and I dont add more margin, so max i will lose is 10,000? and i will get 6,000 back?
Thank You
@Spaceship@nithin If you can help or if you could tag some1 who might be able to answer. Thanks
Span margin is blocked by the exchange and exposure margin is blocked by the broker in accordance with the exchange.
You’ve already paid the span margin to the exchange while entering your position. Your span margin will be returned to you when you exit the position. Futures profit/losses are mark to marketed daily. So profits will be credited and losses will be debited everyday.
The zerodha span calculator calculates span based on previous day close. The real-time span will be more or less equal to this. You can place an order on your trading terminal and calculate the span margin from the total margin blocked as well.
If you have a M2M daliy loss and this money is not present in your trading account, then your account will go into debit balance. And there will be a shortfall of exposure margin first. You have to bring in funds to keep your account balance in green else an interest of 0.05% will be charged on the debit balance amount everyday. If the overall total loss becomes greater than exposure margin and you don’t add funds in time, then your position will be squared off by the risk team because now there will be a shortfall in span margin.
If your account balance comes to green, then no interest will be charged. Because your margin requirements are still fulfilled.
When the loss exceeds the exposure margin and if there are no funds in your account, then your position will be squared off. So if there are no funds in your account, exposure margin is the max loss you will be allowed to take. If there is an untoward move either intraday or overnight, where the loss exceeds exposure margin, then the risk team will have to mitigate further losses but the onus is on you to manage your positions at all times.
