What happens to my Future contract and balance if a stock crash overnight?

F&O
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What happens to my Future contract and balance if a stock crash overnight?

Suppose I have a Future position with 20 Lakh paid as M2M with a contract value of 100 Lakh. Suppose the stock crashed overnight (fraud, bankruptcy) and the stock start trading lower circuit to circuit with no liquidity in Futures for several days.

Now even if my position is squared off a few days later, my balance will be negative in 60 Lakh. As a client, what will be my liability at this point? Can I just forget about the negative balance and let someone else bear the loss instead?

What usually happens in such scenarios in real life?

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whom do you think would bear this loss?

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The broker or NSE perhaps?

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:astonished: Why would they bear the loss for which your trade is responsible.Zerodha would try to recover from you only

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I am not saying they have to. I am asking what usually happens?

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This situation I guess is similar to what happened when crude futures went negative. In such a case, the shortfall of 60lakhs will be recovered from your account by zerodha and if there is not enough money in the account, zerodha will most likely send you a legal notice.

@siva hi, can u please share what did zerodha do with their clients when crude futures went negative and clients didn’t have enough money in their accounts to make up for the big mtm losses?

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This thread gives a very brief overview of what happens in such cases. Normally if the client balance goes into negative and the broker isn’t able to recover those dues, then such cases go into arbitration (each exchange provides facility for this - NSE, MCX, BSE).

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@Prayag @Praksy Is their usually enough liquidity in Futures during a crash to get squared off by RMS with a few lakh negative balance rather than 50 lakh negative balance?

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Yes futures have enough liquidity (Only highly liquid stocks are included in the F&O list by the NSE) but in case of a big gap up and gap down on overnight positions, the losses will be proportional to no. of lots. Suppose SBI stock opens gap down 10%(max allowed in pre market open). Its lot size is 3000 shares in 1 lot. CMP of the stock is 370. so 10% means 37 points down. That is a loss of 37 * 3000 = Rs.1,11,000/- per lot; after pre market the stock can tank any amount so generally slippages will be huge due to volatility.
(If you want to protect losses do some kind of hedging like buying a put for taking overnight positions). That way you will sleep better at night.

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@siva

Hi Siva, can you please respond to this. Thanks.

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Can check this thread. We took a hit of 10 cr plus of our own money and following up with clients, few paid later and few still need to pay.