Here maximum loss is 2.6k but margin required to trade this is 40.3k. I wonder why is that? Is it somehow possible to loss more than 2.6k?
My chance. I will answer this cause no else has.
The reason why margin required is greater than max loss is because of exposure margin. If you are creating a four legged strategy such as an iron fly which has a very minimal loss, the margin required would still involve exposure margin on both of your short options. Exposure margin varies from scrip to scrip but I think it’s 3.5% of contract value for single stocks. For index, it’s 2% of contract value if I am not wrong. That’s why you need pay not only the max loss but also the exposure margin on all of your short options.
Now, does it make sense to have such a system? No. In US market too, you are not charged more than the max loss but in India, we don’t have such a convenience. You understand that it’s a limited risk strategy and so do I. But try explaining this to SEBI or the brokers for that matter. SEBI believes that retailers are dumb and can only incur losses on themselves. So, they implement trading curbs such as these. And brokers always take SEBI’s side. Even if your broker tells you on your face that he understands your situation, he will still take SEBI’s side citing the same rhetoric that SEBI is SEBI and nothing can be done.
These are my 2 cents.
(I spoke the truth and the world including new traders deserves to see this. So, let this be published without fail.)
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To save retail traders.
Then SEBI should ban all retailers to trade. What is logic in this?
I think it might be levied higher margin requirement citing the possibility of trader squaring of 1 or part position say the call or put which is in profit but doesn’t square off the short side.
May be they should create something like locked strategy in which users r obligated to cover entire position rather than part… that may help brokers create sense of risk management in eyes of sebi to reduce margins to say near the max loss.
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