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What is the Meaning of Exposure Margin?
In addition to SPAN margin which is collected at the time of initiating trades, an additional margin over and above the SPAN margin is collected which is known as the Exposure margin and is also known as additional margin. This margin is collected in order to protect a brokers liability which may arise due to wild swings/moves in the markets.
Total Margin = SPAN Margin + Exposure Margin
For brokers like SAMCO who clear their obligations with the exchanges on T Day, the exposure margins are usually lower than others who clear their obligations on T-1 Day. SAMCO enjoys the lowest margin requirement in the Industry due to the same.
What is the difference between Exposure Margin and SPAN Margin?
SPAN margin is an initial margin which is calculated basis the risk and volatility of the underlying whereas the exposure margin is like an adhoc margin calculated on the value of the exposure taken. The SPAN margin for a particular security keeps changing from time to time based on the volatility of the underlying whereas the Exposure margin usually remains the same since its basic function is work as an additional safety net and it is not the initial margin requirement in itself. You can also find the definitions of SPAN and Exposure margins on the NSE Website.
How do Exposure Margin calculations work?
The Exposure margin for index futures contracts is 3% of the value of the contract. For Instance, if the value of a NIFTY futures contract is Rs. 5,00,000 then the Exposure margin applicable there on will be 3% of Rs. 5 Lakhs i.e. Rs. 15,000.
For Stocks, options and other derivatives, Exposure margin is usually 5% or 1.5 times Standard deviation, whichever is higher.
Which are the segments where Exposure margin is applicable?
Exposure margins are applicable while trading in the NSE in the F&O segments and while trading in the MCX in the commodity derivatives.
Is Exposure Margin collected for Intraday Trading as well?
As explained above, the exposure margin is usually summed up in the total margin requirements. Brokers usually charge only a percentage of the total margins for Intraday trades since the risk of intraday trades is lower than over night/carry forward trades.
To check out the intraday trading margin requirements with SAMCO check out the following links –
NSE F&O Margin Requirements – Click Here
MCX Margin Requirements – Click Here
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Won’t the margin requirement be less if I hedge my position?
For Exmaple:
1. I write NIFTY 9200 PE @ 110 and buy NIFTY 8900 PE @ 30.
2. I go long in NIFTY @ 9210 and buy NIFTY 9100 PE @ 70.
Yes. These are hedged positions and margin requirements for these positions will be lower than than standalone unhedged positions. You can check the margin requirements for multi-legged strategies on https://www.samco.in/span
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