Peak Margin – It’s not the Peak Yet!

peakmargin Peak Margin – It’s not the Peak Yet!

There are lot of doubts and ifs and buts in the recently introduced Peak Margin Concept. To clarify them and to have a clear picture of its application let us take a very crisp view of what it is, how is it to be applied and how will it impact your trading.

What is Peak Margin?

This is the minimum margin required at any point of time to take a position, be it Intra-day or positional. This will be directly monitored by Clearing Corporation (CC). The CC will randomly take 4 snap shots during the market time at pre defined times and monitor the margin and utilization levels. Read our detailed blog to understand more about Peak Margin.

What is the required Peak Margin?

Peak margin requirement will be implemented in stages as explained below

Segment

From Dec’20 – Feb ‘21Mar ’21 – May ‘21June ’21 – Aug ‘21From Sep ‘21
Cash Segment5% of traded Value10% of traded Value15% of traded Value20% of traded Value
Derivatives25% of SPAN+Exposure50% of SPAN+Exposure75% of SPAN+Exposure100% of SPAN+Exposure
Illustration
Traded 100 Infosys for 116465116465 * 5%116465 * 10%116465 * 15%116465 * 20%
Traded 1 lot of Nifty. Current SPAN requirement = 1.56 lakh156000 * 25%156000 * 50%156000 * 75%156000 * 100%

The margin that we presently collect for both Intra-day and delivery is higher than the minimum requirement from SEBI and hence, it does not need any change. You are therefore, fully compliant with respect to margin payment on your trades. To know our margin requirement visit here

How is Peak Margin calculated when you hedge your positions?

Margin requirement on hedged positions is much lower than normal positions as you are mitigating loss when you create a hedge. Your peak margin requirement as well stands reduced when you create a hedged position. Let us understand with an example

Bought 1 lot of Bank Nifty Futures

Peak Margin Required : Rupees 40500/-

Sold 1 lot of Bank Nifty Call –

Peak Margin Required : Rupees 40500/-

As mentioned above, you will be required to maintain a margin of Rupees 40500/- if you take either of the position during the day. If you however, take both the positions your combined margin required would be around Rupees 30000 (approximate amount). This is because your position is hedged.

You will therefore, not be levied penalty even if you maintain an amount less than Rupees 40500/- which is the peak margin required for the positions individually. If you however, cover one of the leg, your peak margin will shoot up from 30kto 40.5k as your hedge is removed.  You will therefore, be required to bring in more money.

Thus, whenever you create a hedge you need to have 3 things in mind

  • When you decide to sell one of your hedge positions, sell all other legs too.
  • If you decide to sell only one leg of your hedged positions, bring additional margin

If neither of the above said are done, penalties will be levied for the shortfall and it will change according to the number of days the shortfall persists.

Hence, next time when you take a hedged position do plan your trade within these conditions. After all, saving cost also helps us increase the profits!

Have a Happy Trading

Related Post

6 Comments

Add a Comment

Your email address will not be published.