Welcome to another segment of IIFL’s Whatsnew! Today, we will explain to you the purpose of using our “SPAN MARGIN CALCULATOR”.
If you are buying or selling a futures contract your broker collects margins. Margins on contracts are supposed to cover the risk of adverse price movements. Broadly there are 2 types of margins Span & Exposure Margin. You are required to pay the Initial or Total margin at the time of entering a position.
Span + Exposure = Initial Margin (Total Margin)
The Span margin of a contract is calculated by a standardized portfolio analysis of risk (SPAN) for F&O strategies while trading equities, commodities, and currencies. IIFL has designed this tool in such a way that you can calculate your margin on multiple positions before placing the orders. The Span margin for a security keeps on changing based on volatility. Span margin is usually used by futures and options (F&O) traders who need to have a sufficient amount of margin to cover potential losses.
Through its algorithms, the Span margin system sets the margin for every position in a portfolio to the possibility of having the worst intra-day movement. This is calculated using an array of risks that determines the gains and losses for each contract under different conditions. The conditions refer to different measures of profit and loss with respect to price changes, volatility, and decrease in time to expiration. After calculating the margin of every position, excess or short margin can be shifted to a new or existing position.
You must be wondering, what is the difference between Span margin and Exposure margin? Fundamentally, the margin in Exposure remains the same, as its function is to provide a safety net and not the initial required margin itself. The Exposure Margin for a contract is 3% of the total value of the contract, determined by SEBI. For example, if the size of a contract is 5,00,000 (₹5 lakh) the Exposure Margin will be 15,000.
Thereby, adding the Span and Exposure margin we form the initial margin. It is mandatory to deposit before placing a trade. Lastly, the initial margin depends on the volatility of a security, the higher the volatility the greater the initial margin.
The table below consists of an example of how the Initial or Total margin is calculated:
Learn How To Use Span & Exposure Margin:
After successfully logging into the IIFL Markets app, scroll all the way to the bottom and click on “MORE”.
After doing so you can choose the segments you are placing a trade-in. For example, we are going to place a futures trade in equities. Keep in mind to select the quantity and expiry date as per your investment plans.
Simply search for the scrip and add it to the calculator so our algorithm can do all the work.
Lastly, you can calculate the margin for your entire investment portfolio within seconds. Below, you can see the total margin needed to place a futures position on Reliance and TCS for a period of 24 hours.
Click here to access India's best trading app and use our amazing Span margin calculator before placing your trades.