Let’s assume that you are buying a flat in an under-construction building for ₹1 crore. The realtor says that he or she will hand you the keys after three years. But, to book this flat today, you need to pay 10% of the value. You really like the place and the location, so you agree to pay ₹10 lakh in advance to book the flat. This ₹10 lakh can be called margin money or requirement to buy the flat in the future.
Things function similarly in the futures and options (F&O) markets. To buy an asset in the future, you need to put some money upfront. In other words, if you want to place a trade or take a position, you have to deposit the margin money.
Understanding margin money
Let’s understand this with an example.
Shares of India’s tech giant Tata Consultancy Services (TCS) is currently trading at ₹3,500. Let’s assume that you are moderately bullish on this stock. So, you decide to deploy the Bull Spread Strategy. This is done by buying a call option and then selling a call option at a higher strike price.
The lot size of TCS call option is 175. This means, the cost of buying 175 shares of TCS would be 6,12,500 (3,500 x 175). But, in options trading, you get exposure to 175 shares of TCS by paying the margin money upfront.
You buy a call option at 3,500 strike price with a premium of ₹20. So, the cost of buying a call option is around ₹3,500 (175 X 20). And, you can sell a call option at 3,600 strike price with a premium of ₹8. The cost of selling this call option is ₹ 1,07,000.
To enter this trade, you need to deploy around ₹1,10,500 in your demat account, which acts as margin money or requirement. This is 18% of ₹6,12,500. Similar to the down payment for a flat.
💸 Introducing Basket Orders
If you place this (bull call spread) trade, using Upstox’s Basket Orders feature, you will know your required estimated capital upfront. And, by placing the order to buy a call option first and then the order to sell the call option, your total margin would come down drastically. For the above-mentioned example, the margin requirement would drop to ₹25,000 from ₹1,10,500. It means by using Upstox’s Basket Orders feature, you end up saving 77% of your margin money.
Besides this, other advantages of Basket Orders are:
⏰Save time, reduce manual effort
Basket orders help speed up the trading process by setting up your trades ahead of time and allowing them to get executed based on certain conditions. This saves your time, reduces the risk of order errors and price movements while placing trades.
📲Efficiently manage and track orders
Create up to 20 orders in Stocks, Options, Futures, Currencies & Commodities. Easily clone, modify, or delete orders within the basket as per your preferences. Execute and track real-time status of orders within your baskets, ensuring optimal control and convenience in your trading activities.
📊Easier trade analysis
Gain insights into live basket positions by viewing required margin, P&L charts and more. You can place stop-loss or profit-taking orders for all securities in the basket, reducing the risk of losses. You can even include existing positions, if required
So, try out Upstox’s new Basket Orders feature. Here’s how it works:
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