Can @siva or @nithin please elaborate on the peak margin thing with an example? didn’t quite get it
It means f/o also?
Got a call from 2 of my brokers. Motilal Oswal ( subbroker ) and trustline ( direct but not active ) .
My understanding after the call and other traders are,
- There was no ( or serious ) discussion about fno leverage in first place
- Most of the brokers esp full service brokers dont even consider this reducing intraday leverage as an issue ( or confident that they can lobby to maintain the status quo successfully )
- Vast majority of the brokers are aggressively against this move in case the fno leverage comes up again in the future
- Brokers provide higher leverage by using collateral and not with 100% cash ( many leverage brokers are misleading and asking sky high brokerage saying that they borrow huge money to fund us and need to recover their interest payment atleast. In reality they might by funding with mostly collateral + little cash )
- In the worst case scenario most probably SEBI will agree for higher leverage provided brokers fund using their own cash or cash + collateral or collateral . If brokers are forced to provide margins only from their free cash , brokerages will goto the roof and most traders wont benefit from their leverage trades.
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@velu sir, but if Sebi made it compulsory to provide fixed leverage in cash and 0 leverage in F&O, every brokerage firm will have to follow the rules right?
And after @nithin sir’s reply I’m assuming we’ll get a clear picture of this issue by April only.
if SEBI made it compulsory , then there is no other option for the brokers .
But it looks like reducing or removing the leverage is not in their agenda.
Like I explained in the beginning of the post, if you have Rs 1lk and broker allows you to buy say 3 contracts of Nifty future where margin is 3lks for intraday, it doesn’t get reported to the exchanges. What gets reported is the end of the day margin. So by end of the day, if the margin in your account < margin required to hold position, there is no penalty.
With peak margin reporting, along with end of the day, the exchanges will share with broker the peak margin utilized by a client during the day. So a broker will now end up having to report to the exchanges, the Rs 3lk position that was taken with just Rs 1lk. Like the way there is short margin penalty for overnight position, there will soon be for intraday position.
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Clearly the 2 brokers who you spoke to have no clue about what happened in the meeting. You will just have to wait for a few weeks to see all the changes that will happen.
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@siva, Please dont compare US to India… US is a developed country… We are a developing country… Our purchasing powers are different…
Average wealth of a US citizen is 3 crore rupees… [source wikipedia]
Average wealth of a Indian citizen is 10 lakh rupees… [source wikipedia]
If we both set aside 20% of our wealth for stock markets, then-
- An Indian citizen has 2 lakh rupees, with this as per new margin requirements, he can only trade 2 lots of Nifty intraday.
- An US citizen has 60 lakh rupees, with this he can trade almost 170 lots of Dow or Nasdaq index contracts intraday. ($500 per lot intraday as per ‘optimusfutures’ broker)
Thats why we Indians need more leverage so that ROI on our investments will be good enough and it actually can make some sense…
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That is very wrong perspective, in any country leverage alone won’t make you money, it is the strategy,execution combined with better risk management. Leverage will be beneficial to them who are good at those 3 points, how many retailers you think will be having some kind of trading plan and executes it accordingly? coming to the point I am never against leverage in the first place.
Anyhow this expedited because of karvy, BMA incidents, also few brokers are senselessly offering nifty to trade with as low as 2000 rs per lot because of their greediness for money without realizing how much systemic risk they are adding to the system, as a regulator it is responsibility of SEBI to correct these malpractices but at the same time they should also understand the system, it’s practices and come to a balanced ground, I personally want to have leverages but at some cap, for fno let it be 3 or 5 or 7 times max for intraday considering fno is already leveraged products.
More than leverage what we need is reduction in margins for strategies which has maximum cap on loss, hopefully sebi will come out with new margin structure soon.
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@siva, I am sorry to say, but if a retail trader has a proper strategy, money management and risk management plan, than leverage does make him rich…
There are many retail traders who have all the above requirements and make very good money with leverage… This new SEBI rule closes the door for all, even for this experienced traders…
Karvy and BMA incidents have nothing to do with leverage… In both these incidents brokers were banned because they transferred client securities illegally… Now as per the new margin requirement SEBI want us to indirectly to keep more funds with the broker… how ironic decision is that…
If a broker offers to trade a Nifty contract at 2000 rs, then if the position starts to go in loss then RMS team has full right to close his position as per RMS policy which is about 80% capital for most brokers… As it is only 2000 rs, the closing as per RMS policy will be very much prior to the circuit limits… So where is the problem???
Yes, I meant cleaning of the system.
It is a big problem, on nifty 30 to 50 jump is very plausible during intraday, means client will be wiped out full of their money and broker has to make good for rest. His own funds are at risk, if broker don’t have enough own funds then other client funds are at risk. Also what if their RMS systems din’t work one day for any reason, it can happen to anyone so some basic margin is required, should not live dangerously. It is the responsibility of sebi to control these kind of senseless and stupid policies but at the same time should not completely take out leverages, should have reasonable leverages, I believe.
Clients are adults… If he has taken a position, then he surely has analysed the risk… If not, then he deserves to loose money on that trade… It will be a lesson learnt for him…
IMO SEBI shall come up with rules to check and ensure that broker has enough funds… and the leverage is provided from brokers funds itself… can develop some system to track this rather than banning leverage altogether…
It is the fault of broker… As leverage will be used fully from brokers fund, broker looses money…
I agree with you… But leverages should be fairly high and not too low…
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Is this what we are looking forward for?? But they don’t talk anything about option selling
Nitin, so again the ban on leverage will happen,then there is no positive news from this meeting, if some benefit will be given to intraday traders as risk is less than overnight position then some good news, cud you clear my doubt
Completely removing leverage isn’t the right thing to do anyways. IDK why SEBI isn’t considering this.
One more doubt Nitin, in f/o we will get the same leverage till April 1st as you mentioned in a post, am I right?
What is " NSE to introduce cross margining facility from January 10 "
This is old update. Yesterday comes new update.
If that is so,it would be really appreciated if you would elaborate as to what has happened in the meeting ,specifically about SEBIs decision on f&o intraday leverage @nithin leaving no scope for any confusion,since there is no point in wasting time beating around the bush here on some random topic…