Concept
Margin: SPAN, Exposure and What You Actually Post
Margin is the amount a broker requires you to hold against an open derivative position. It is a deposit securing potential losses, not a payment — it is not spent, but it is not available for anything else either.
How to read it
- SPAN margin is calculated by the exchange using a risk model that simulates the portfolio across a range of price and volatility scenarios, taking the worst outcome.
- Exposure margin is an additional layer on top of SPAN, set as a further buffer.
- The total requirement changes as the position moves and as volatility changes. It is recalculated rather than fixed at entry.
Margin is not the size of the position
A trader posts roughly ₹1.2 lakh of margin to carry one lot of an index future. The contract itself represents around ₹14.6 lakh of exposure. If the index moves 1%, the position gains or loses about ₹14,600 — which is 1% of the contract value but roughly 12% of the margin posted. The margin figure is what the broker needs held; the contract value is what the profit and loss moves against. Traders who size positions from the margin available, rather than from the loss a stop would produce, are the ones most often surprised by how quickly an account changes.
What it does not tell you
- Margin bears no relationship to how much you can lose. It is a deposit sized to a scenario model, and losses can exceed it.
- Requirements increase when volatility rises — meaning capital is demanded precisely when conditions are most difficult.
- Brokers may require more than the exchange minimum, and for stock F&O approaching expiry they frequently escalate requirements substantially.
Frequently asked questions
What is SPAN margin?
The exchange-calculated portion of margin, produced by a risk model that evaluates the portfolio across a range of price and volatility scenarios and takes the worst case.
What is exposure margin?
An additional margin layer required on top of SPAN, acting as a further buffer against adverse movement.
Is margin a cost?
No. It is a deposit held against the position and released when the position is closed. It is not spent, but it is blocked and cannot be used elsewhere meanwhile.
Why did my margin requirement increase?
Because it is recalculated as conditions change. Higher volatility, a position moving against you, or approaching expiry on stock derivatives can all raise the requirement.
Related
- Leverage: What It Does and Does Not Change — Concept
- Mark to Market and Margin Calls — Concept
- Position Sizing Basics — Strategy
Educational use only
This page is educational material about how a technical tool is calculated and read. It is not investment advice, not a recommendation to buy or sell anything, and not a signal service. No indicator predicts future prices. CernoQuant is a trading journal and analytics platform, not a SEBI-registered investment adviser. Trading decisions and their outcomes are yours alone.
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