At the time of initiating trades on the stock and commodity exchanges in India, exchanges usually block margins. These margins comprise of 2 components which include SPAN margins and Exposure margins.
What is SPAN Margin?
SPAN margin derives its origin from SPAN i.e. Standard Portfolio Analysis of Risk which is a method for measuring portfolio risk. In Indian stock markets, SPAN margin is also commonly referred to as VaR margin or initial margin which is the minimum margin requirement for initiating a trade in the markets. A detailed meaning of the SPAN can also be found on the NSE website.
The SPAN margin is usually different for every security depending on the nature of risk of the security. For instance, the SPAN margin requirement for a Index will be lower than the SPAN margin requirement for a single stock since the risk of portfolio/index is usually lower than that of a specific stock or security. One of the other significant factors under consideration for the determination of SPAN margins is the historic volatility of the underlying. So an inference can be drawn, that lower the volatility, lower the SPAN and higher the volatility, higher the SPAN margin requirement.
You can calculate the SPAN margin requirements for different securities in the SAMCO SPAN Margin calculator.
Over and above the SPAN margin requirements, brokers also collect an additional margin known as the Exposure Margin.
SPAN Margins for popular contracts in India
NIFTY SPAN Margin – 5%
BANK NIFTY SPAN Margin – 5%
USDINR SPAN Margin – 1%
Gold SPAN Margin – 5%
A commonly asked question on the SPAN is that is SPAN different for intraday trading and overnight/carry forward trading?
No, SPAN margin is the same irrespective of the fact that the trade is an Intraday trade or an overnight trade. However, brokers may at their own discretion charge lower upfront margins for intraday trades since the risk involved with Intraday trades is usually lower. You can check the SPAN and total margin requirements for different derivatives on the SAMCO Margin calculator. However, the SPAN margins for overnight/carry forward trades is exactly the same across all brokers for the same contract. What may differ is exposure margin based on risk management policies of the broker.
Common Reference Links
1 – NSE SPAN margin Calculator – Click Here
2 – MCX SPAN Margin Calculator – Click Here
3 – CDS SPAN Margin Calculator – Click Here
4 – Total Margins for Equity Derivatives – Click Here
5 – Total Margins for Commodity Derivatives – Click Here