This circular is not for small traders protection, as it is generally potrayed by regulators.Rather, it will end up swindling more money from a retail trader. Let me explain how.
Suppose a trader named Ajay has a capital of 6 lacs in his bank account Now he has a penchant for intraday stock market trading and he has a strategy to trade in index futures
So he puts aside 50k from his bank account to a discount broker account that offers 12x margin. So essentially he can use 6 lacs to trade approx 6 lots of nifty futures.Now since his capital engaged in trading account is 50k, and psychologically, he has a per trade risk tolerance of 2 percent, he will be more stringent in taking risk. He will put a sloss order wherein he loses max 1k. So essentially his loss will be 1 k only.
Now with the current rules, he will have to shift his entire 6 lacs in the trading account. And because of psychological 2 percent risk tolerance, this time he will hold his entire position till he loses12k
This is how psychology also will play a part and he will be swindled off sooner than later.
Authorities need to understand this
Hi Nithin,
This is possible for smaller stocks trading with low volume but there is rare or even no chance of NIFTY100 stocks hitting circuit limits. Then why leverage is reduced for them as well?
Nothing like that, anything can and will happen in markets,in last couple of years we have seen many stocks which are part of nifty 100 tanked, for ex once darling of traders yesbank has come to 30 levels from 400, can see AGAG group stocks, during the day they have witnessed 20% to 40% moves.
Yes, I agree but probability is max 1%. Is it not worth enough for Zerodha to take that risk of 1% and provide more leverage on nifty100 stocks so as not to disrupt the trading process of many small traders?
At least provide leverage on nifty index option writing where the chance is very less of severe move as I have not seen index hiting upper and lower circuit in quite a long time apart from 2009 general election where the normal margin can be taken from traders but in common scenario traders should be given some kind of leverage to make intraday trade more sensible
Hai , Recent SEBI move Is good , SEBI doesn’t want the stock market its a gamble place , SEBI want to treat stockmarket is a professional business , as trading and hedging and investing , really i agreed , even as i am a option seller . i will never take more than 10 lot in one strike because i have a fear ,because i also stopped expiray day trading , because of fear .
my friend he is trading in ASTHA broker he is getting 50x for option selling , he is writing 150 lots in one strike of bank nifty with the capital of 5 lakhs , ,3 weeks back he lost 2 lakhs + the bank nifty sudden move , if the broker is giving more leverage automatically our mindset will try to use the leverage , because if you loose capital you will never get it back from market its really hard . Minimum leverage is ok , i like zerodha in this matter , so only i stick with zerodha, because RMS is perfect , zerodha is protecting client as well as broking business , really Greed will kill as through leverage ,
SEBI is bringing good hedging margin system , this is really very good everybody can make money without fear and the loss also minimal , lets welcome the move , SEBI does in have any personal intervation with retail traders , SEBI want to protect retail as well the eco system , lets welcom the new rule and enjoy the hedged margin system
@nithin Did one more calculation.
Suppose a trader has 10 lakhs margin. Currently he can write 11 lots of Nifty 12500 CE as per zerodha’s own margin calc.
How much does he earns? And what is his PoP?
About 37K with PoP of 79%.
Now if new margin regime for hedged positions gets implemented and that to as per your suggestions.
And if I hedge this position with 12600CE. For each spread I will have to pay
5978+1856.25+12500 * 75 * 1.5% = 21896.75
So in 10 L I can put in 45 spreads.
So my max profit will be 68k.
So Returns won’t even be twice that of what it is now.
I stupidly didn’t calculate in the “cost of the hedging leg” and for whole day thought that my monthly income is not gonna hurt much!!
Well it seems it’s gonna hurt BAD!
And by the way in my calculations I added the premium paid on buy side, wont it be offset by premium received on sell side? So do I need to only add debit or credit premium on total spread?
How sebi saves any retail investor? Give just one example, how many companies are active which has taken money from public in last 20 years, how they allow fraud to raise capital from public is well known,
In option writing margin too high in comparison to risk even today had I sold any call option my risk at 10 is 40-50 max which means loss of 3500 - 4000, but I have to give 115000 as margin which is absurd
Like I said earlier, it isn’t my suggestion, it is just a guess. Can we wait till something comes out to have further discussion on this topic. No point wasting both our times discussing on this right now.
Thanks Nithin
If not leverage on crude oil Futures at all then Atleast try and defend MIS margin if MCX come out with Circular. Because trading with NRML margin is way too unviable to trade. We can also adjust with MIS margin.
?