The initial margin to buy a Nifty Future is decided by the Span & Exposure margins. As of now, when Nifty is at 14500, to buy a Nifty Future one has to have 84,000 for intraday position and 1,62,000 for overnight positions. This changes as per the value of the Future and as per the market conditions as the Span margin is increased in times of extreme volatility to save the capital of small Retail traders. The total percentage varies from 8% of the total Futures value for Intraday positions and 15% for Overnight positions.
Nifty Futures-
Nifty Future is a form of derivative that is affected directly by the movement of Nifty. A Futures contract is a legal agreement between the buyer and seller of the contract to exchange the underlying security on a future date. Since Nifty is an Index the underlying security is a group of 50 stock that cannot be exchanged as a whole hence Physical delivery of the underlying securities does not take place in Nifty Futures.
Margin-
Margin is the percentage of the total value of the particular contract that is collected by the broker when you take a position in it. For example, the Nifty Future is trading at 15000, and the lot size is 75 hence the total value of the contract will be equal to 15000 X 75 = 11,125,000. But the margin collected will be only a percentage of it.
Types of Margin required for Nifty Future-
To take exposure in a Futures contract there are 2 types of margins that you have to pay in order to take a Long or Short position in any Future, they are-
- Spen Margin
- Exposure Margin
1.Span margin- Span margin is the minimum requirement of margin that is required to Buy or Sell a Future contract. It is calculated based on the market value of the underlying Contract.
2.Exposure margin- Exposure margin is the margin that is collected over the Span margin that acts as a cushion in the case of an extreme MTM (Mark to Market) loses due to unforeseen conditions. The Exposure margin is to be collected mandatorily by each and every broker as directed by the market regulator SEBI (The Securities and Exchange Board of India). The total exposure margin changes from time to time depending on the market conditions. In the case of extreme volatility, exposure margins are increased that reduces the affordability to small retail traders in order to keep them safe. The risk involved in Futures in very volatile conditions is high therefore the margins are increased.
Margin required to buy Nifty Future-
Now to buy a Nifty Future one will have the pay the Initial Margin that contains Both the Span margin and the Exposure margin.
(Initial Margin= Span Margin+Exposure Margin).
To buy a Future contract of Nifty the Initial margin in today’s date is- 1,62,000 approximately which includes 22,000 as the Exposure Margin and 1,40,000 as the Span margin.
The margin also changes for order types. To take an intraday position one will have to pay less margin as the Span margin reduces as the position is not carried overnight. The total margin for an Intraday position in Nifty Future is approximately 84,000 in MIS (Margin Intraday Square off) order which is approximately 8% of the total value of the Futures.
And the margin required for an NRML or overnight order is 1,62,000 approximately which is around 15% of the value of the Futures contract. This margin is higher due to the higher Span Margin collected by the broker that acts as a cushion in case of Extreme market situations that can happen overnight. This Percentage also varies from broker to broker as some offer more leverage on Derivatives.
Conclusion-
To conclude it can be said that the Initial margin to Buy a Nifty Future is around 84,000 for intraday positions and 1,62,000 for overnight. This increase in margin for overnight positions is because of the higher Span margins collected by the broker for the security of the trader. Span margins are increased in Volatile markets that as a result increases the total cost of taking a Future position. This is done to ensure the safety of the capital of Small Retail traders.