While F&O trading can be highly profitable, you are required to have adequate margin money in your trading account to initiate a trade. Read this post to know how calculators for calculating F&O margin can help.
Just like you buy and sell shares in the cash segment of the stock market, there is another trading instrument known as Derivatives which involves Futures & Options (F&O). These are standardised contracts where you agree to buy or sell a particular number of shares of a company at a pre-determined price in the future.
Rather than buying 5, 10, or 100 individual shares of a company, an F&O contract is made up of lots which can include 50, 100, 200, 500, or even 1000, or 5000 shares. But unlike the cash segment where you buy all the shares and pay for the same as per their market price, the F&O contracts do not require you to pay the full amount.
You only need to pay a margin amount which is a fraction of the actual price of the shares you purchase. For instance, buying 100 shares of XYZ company can cost you INR. 1 lakh. A futures contract of the same company with 100 shares in it might cost you only INR. 20,000.
But while all of this seems not too difficult to understand, there is something known as Total Margin that you need to have in your trading account to trade in F&O. This margin amount varies between stocks and is required to make sure that you have adequate money to cover the losses.
To make things easier for the traders, there are now calculators which can be used for calculating the margin money. Some of the ways in which these calculators help is discussed below-
- Know the Exact SPAN Margin and Exposure Margin
The Total Margin required to initiate an F&O trade is made up of two parts- SPAN Margin and Exposure Margin. The SPAN Margin is the margin that is blocked as per the mandate from the exchange you are trading on. Whereas, the Exposure Margin is the amount above the SPAN Margin for cushioning the market-to-market losses.
With the help of the calculator, you can accurately know the SPAN Margin and Exposure Margin. With the help of this information, you can quickly identify whether or not you have adequate reserves in your trading account to place a particular F&O trade.
- Protect Yourself from Margin Penalty
If you do not have sufficient margin money in your trading account, especially in carry forward F&O trades, there is a margin penalty for the same. Online calculators use the historical volatility of scrip for calculating the required margin.
The worst case scenario is taken into consideration to make sure that you can maintain the maximum margin a trade would require. Simply maintain this calculated margin amount, and you can protect yourself from margin penalty.
- Calculate Margin across Multiple Exchanges
Apart from different stocks, the margin requirement also varies between exchanges like BSE, NSE, MCX, and NCDEX.
With the help of the calculators, you can calculate the margin requirements of all the different exchanges. If you generally trade across different exchanges, these calculators make it easier for you to know the margin requirements of each exchange.
- Create a Margin Portfolio
If you generally place multiple trades in F&O, some of the calculators also allow you to add multiple scrips and create a margin portfolio.
If you want to place multiple trades in the F&O category, you can add the scrips you wish to trade in and know the total margin money you’ll need for placing all the desired trades.
- Know the Number of Shares in a Lot
Another very useful benefit of margin calculator is knowing the exact number of shares in an F&O scrip. As mentioned above, the number of shares across different scrips can vary significantly.
While the lot size can also be checked on the trading platform you use for trading, its availability on the calculator further enhances your trading convenience.
While there are a lot of things that one should know about F&O trading, the margin requirement is one of the most important. Use the calculator to calculate the margin before placing a trade, and you can place well-informed and confident trades.