The long-awaited margin framework for futures and options has gone into effect on 1 June 2020. With this change, traders who have hedged their positions (i.e. have multiple positions that fully or partially offset the risk of loss) will be required to keep lower margins, and conversely, for higher-risk positions, the margins will be higher...
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The long-awaited margin framework for futures and options has gone into effect on 1 June 2020. With this change, traders who have hedged their positions (i.e. have multiple positions that fully or partially offset the risk of loss) will be required to keep lower margins, and conversely, for higher-risk positions, the margins will be higher. For certain low-risk strategies, the margin decreases by as much as 70%. This is expected to encourage a new class of risk-averse traders to enter the market.
The methodology that determines the F&O margins has been modified in such a way that in a highly volatile market, a higher margin will be required for unhedged positions. Further, given that market volatility has been high during the current pandemic, the margin required for unhedged positions is ~30% higher on average. However, as market volatility reduces, the trading risk will be lower, which will bring down the margin requirement.
We advise all clients to adjust their options strategies to make the most of the revised margin framework.
Please note:
Clients having open positions as on 29 May 2020 can view revised margin requirements on 1 June 2020 on the Pro Mobile app and Pro Web. If you have any unhedged positions, the margin required will be higher and you shall be required to add funds by 1.00 pm on 1 June 2020 to maintain your positions, following which such positions shall be squared off at any time.
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