Tuesday, 24 November 2015

Understand Brokers Daily Margin Statement



Understand Your Daily Margin Statement:-

If you are trading through a stock broker in India in any of the segment i.e Equities, Derivatives Currencies then stock broker have to send you Daily Margin Statement as per Annexure B of Exchange Circular Number NSE/INSP/19583 dated December
Daily Margin Statement
Understand the Logic of Daily Margin Statement as follow:-

Segment: - It could be the segment in which your trading is taking place, Assume you are trading with a broker in NSE Equity, NSE Equity Derivatives & NSE Currencies then the report should display all the details pertaining to each segment

Trade Day: - As per brokers terminology it is referred to as T Day, Assume you traded on 23/11/2015 then T Day or Trade Day would be 23/11/2015 and all your data pertaining to the report would be calculated as on T Day
Funds (A):- Funds is nothing but your ledger balance whether debit or credit. In case if you deposited a cheque in brokers bank account or gave a cheque to broker on T day then it could be taken in to consideration for calculation but again it is at a broker’s discretion because brokers want to play safe. Broker would only consider the cheque once it is cleared and funds are actually transferred in broker’s bank account.

Value of Securities after Haircut : - Value of securities are calculated on daily basis after levying haircut. Remember these securities are the ones in which you had a debit and stock is being withhold by the broker. As per NSE Calculation has to take place the member shall compute the value of such securities as per the closing rate on T-1 day as reduced by the appropriate haircut at a rate not less than the VAR margin rate of the security on that day i.e. T-1
day.
Please find the calculations below

Scrip Name
Holding
Quantity
Illiquid
VaR Margin or Haircut by Exchange on T-1 Day i.e 20/11/2015
VaR Margin or Haircut by Broker  on T-1 Day i.e 20/11/2015
Market Rate (T-1)
i.e 20/11/2015
Market Value before Haircut
Market Value After Haircut
Reliance Industries
100
No
12.50
12.50
946.85
94685.00
82,849.37
Golden Tobacco Limited
100
Yes
47.48
47.48
48.60
4860.00
4860.00
Total Value of Securities after Hairuct                                                                                                       87,709.30
Above Calculation are derived as per the appropriate haircut at a rate not less than the VAR margin rate of the security on that day i.e. T-1 there are chances that a broker can increase the VaR Margin rate or Haircut as per their own discretion

Please find the calculation below if the VaR Rate or Hair Cut is as per broker’s discretion

Scrip Name
Holding
Quantity
Illiquid
VaR Margin or Haircut by Exchange on T-1 Day i.e 20/11/2015
VaR Margin or Haircut by Broker  on T-1 Day i.e 20/11/2015
Market Rate (T-1)
i.e 20/11/2015
Market Value before Haircut
Market Value After Haircut
Reliance Industries
100
No
12.50
20.00
946.85
94685.00
75748.00
Golden Tobacco Limited
100
Yes
47.48
100
48.60
4860.00
0.00
Total Value of Securities after HairCut                                                                                                       75748.00

As you can see in the above table Broker has increased their own hair cut which is more than exchange specified haircut which also reduced your holding value. All these is a part of Risk management policy of a stock broker.

Must Read : What is power of attorney in Demat & Online Trading ?

Bank Guarantees / FDR: - Bank Guarantees / Fixed Deposit provided to the broker as Initial Margin for FO , This should be represented against Equity Derivatives and Equity Currency Segment in Daily Margin Statement

Any other approved form of Margins: Approved form of margins is used for Equity Derivatives & Currencies. As Initial Margin is compulsory to be deposited with a broker for trading FO & Currency, approved scrips i.e liquid scrips valuation would be considered in the column.
Logic of the same remains as shown in above table

Total Margins Available: - Funds +/- (Value of Securities + Bank Guarantees + Collateral (Shares) ). Remember the data shown is for a Particular Exchange & Segment for
Example:-
Exchange/ Segment
Funds
(A)
Value of Securities (After Haircut)
(B)
Bank Guarantees / Fixed Deposit
(C )
Any Other Approved form of Margins
(D)
Total Margin Available
E=(A+B+C+D)
NSE CASH
  1,000 Dr
5000 Cr


  4,000 Cr
NSE
15,000 Cr

10,000 Cr
7,500 Cr
32,500 Cr
Total
14000 Cr
5000 Cr
10,000 Cr
7,500 Cr
36,500 Cr

Total Summation of the above becomes your Margins Available to T Day i.e Your Trading Day for particular segment

Margin required by Exchange end of T Day
Initial Margin:- Initial Margin is a Span margin levied by exchange to broker and in turn to you.

Futures options, as well as futures margins, are governed by the exchange through a calculation algorithm known as SPAN margining

The Standard Portfolio Analysis (SPAN) of Risk system is a highly sophisticated methodology that calculates performance bond requirements by analyzing the “what-ifs” of virtually any market scenario

The Standard Portfolio Analysis (SPAN) evaluates overall portfolio risk by calculating the worst possible loss that a portfolio of derivative and physical instruments might reasonably incur over a specified time period (typically one trading day.) This is done by computing the gains and losses that the portfolio would incur under different market conditions.  At the core of the methodology is the SPAN risk array, a set of numeric values that indicate how a particular contract will gain or lose value under various conditions. Each condition is called a risk scenario. The numeric value for each risk scenario represents the gain or loss that that particular contract will experience for a particular combination of price (or underlying price) change, volatility change, and decrease in time to expiration.

Assume you wanted to buy 1 Lot of NIFTY NOV 26/11/2015 FUTURES which would have a Span Margin of around Rs 30000/- & 10 Lot of USDINR 26/11/2015 would have a span margin of 15162
(Above calculation are based on last span file of 24/11/2015)

There are certain brokers who levy additional margin over and above span margin levied by exchange. Such details should be maintained in brokers RISK Management Policy and additional span margin charged should be displayed in column J of Daily Margin Statement i.e Additional Margin required by member as per RMS

Exposure Margin: Exposure Margin is an additional margin levied by exchange over and above initial margin to broker and in turn to you.  Exposure margin is the term used for Equity Derivatives & Extreme Loss Margin as the term used for Equity Currencies
As per exchange compliance, Exchange would charge exposure margin to broker and it is up to the broker’s discretion to charge the same to their client again this part is mentioned in brokers RMS policy.
Exposure Margin for Currency segment is not compulsory but still brokers charge the same

Total Margin :-  Sum of Span Margin (Initial Margin + Exposure Margin)
Excess / Shortfall w.r.t. Requirement by Exchange / NSCCL: - Total Available Margins (Shown Above) – Total Margin (Initial +Exposure )

Additional Margin required by member as per RMS: - There are certain brokers who levy additional margin over and above span margin levied by exchange. Such details should be maintained in brokers RISK Management Policy and additional span margin charged should be displayed in column J of Daily Margin Statement i.e Additional Margin required by member as per RMS

Margin Status (Balance with Member / Due from client):- The final figure pertaining to exchange is the amount you require to pay to the broker or broker has to pay to you and this is the amount in which you beginning of day or next day trading limit is available

4 comments:

  1. Thanks for such a good collections.its very helpful for me again thank you.
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