5.1 – Things you should know by now

Margins clearly play a very crucial role in futures trading as it enables one to leverage. In fact, margins are the one that gives a ‘Futures Agreement’ the required financial twist (as compared to the spot market transaction). For this reason, understanding the margins and many facets of margins is extremely important.

However, before we proceed any further, let us list down a list of things you should know by now. These are concepts we had learnt over the last 4 chapters; reiterating these crucial takeaways will help us consolidate all the learning. If you are not clear about any of the following points, you will need to revisit the previous chapters and refresh your understanding.

  1. Future is an improvisation over the Forwards.
  2. The futures agreement inherits the transactional structure of the forwards market.
  3. A futures agreement enables you to financially benefit if you have an accurate directional view of the asset price.
  4. The futures agreement derives its value from its corresponding underlying in the spot market.
    1. For example, TCS Futures derives its value from the underlying in the TCS Spot market.
  5. The Futures price mimics the underlying price in the spot market.
    1. The futures price and the spot price of an asset are different, attributable to the futures pricing formula. We will discuss this point at a later stage in the module.
  6. The futures contract is a standardized contract wherein the agreement variables are predetermined – lot size and expiry date.
    1. The lot size is the minimum quantity specified in the futures contract.
    2. Contract value = Futures Price * Lot Size
    3. Expiry is the last date up to which one can hold the futures agreement.
  7. To enter into a futures agreement, one has to deposit a margin amount calculated as a certain % of the contract value.
    1. Margins allow us to deposit a small amount of money and take exposure to a large value transaction, thereby leveraging the transaction.
  8. When we transact in a futures contract, we digitally sign the agreement with the counterparty; this obligates us to honour the contract upon expiry.
  9. The futures agreement is tradable. Which means you need not hold on to the agreement till the expiry
    1. You can hold the futures contract until you have a conviction on the asset’s directional view; once your view changes, you can get out of the futures agreement.
    2. You can even hold the futures agreement for a few minutes and financially benefit if the price moves in your .favour
    3. An example of the above point would be to buy Infosys Futures at 9:15 AM for 1951 and sell it by 9:17 AM in 1953. Since Infosys lot size is 250, one would stand to make Rs.500/- (2 * 250) within a matter of 2 minutes
    4. You can even choose to hold it overnight for a few days or hold on to it till expiry.
  10. Equity futures contracts are cash-settled
  11. Under leverage, a small change in the underlying results in a massive impact on the P&L
  12. The profits made by the buyer is equivalent to the loss made by the seller and vice versa.
  13. Futures Instrument allows one to transfer money from one pocket to another. Hence it is called a “Zero Sum Game.”
  14. The higher the leverage, the higher the risk.
  15. The payoff structure of a futures instrument is linear.
  16. The futures market is regulated by the Securities and Exchange Board of India (SEBI). Thanks to the watchful eye of SEBI, there has been no incidence of counterparty default in the futures market.

If you can clearly understand the points mentioned above, then I’d assume you are on the right track so far. If you have any questions on any of the above-mentioned points, you need to revisit the previous four chapters to get the concept right.

Anyway, assuming you are clear so far, let us now focus more on the concept of margins and mark to market.

5.2 – Why are Margins charged?

Let us now rewind to the example we quoted in the forwards market (chapter 1). In the example quoted, 3 months from now, ABC Jewelers agrees to buy 15Kgs of Gold at Rs.2450/- per gram from XYZ Gold Dealers.

We can now clearly appreciate that any gold price variation will either affect ABC or XYZ negatively. If the price of gold increases, then XYZ suffers a loss, and ABC makes a profit. Likewise, if the price of gold decreases, ABC suffers a loss, and XYZ makes a profit. Also, we know that a forwards agreement works on a gentleman’s word. Consider a situation where gold price has drastically increased, placing XYZ Gold Dealers in a difficult spot. Clearly, XYZ can say they cannot make the necessary payment and thereby default on the deal. Obviously, what follows will be a long and gruelling legal chase, but outside our focus area. The point to be noted here is that in a forwards agreement, the scope and the incentive to default is very high.

Since the futures market is an improvisation over the forwards market, the default angle is carefully and intelligently dealt with. This is where the margins play a role.

In the forwards market, there is no regulator. The agreement takes place between two parties with literally no intermediary watching over their transaction. However, in the futures market, all trades are routed through an exchange. The exchange in return takes the onus of guaranteeing the settlement of all the trades. When I say ‘onus of guaranteeing’, it literally means the exchange makes sure you get your money if you are entitled. This also means they ensure they collect the money from the party who is supposed to pay up.

So how does the exchange make sure this works seamlessly? Well, they make this happen using –

  1. Collecting the margins
  2. Marking the daily profits or losses to market (also called M2M)

We briefly looked into the concept of Margin in the previous chapter. The concept of Margin and M2M is something that you need to know in parallel to appreciate futures trading dynamics fully. However, since it is difficult to explain both the concepts simultaneously, I would like to pause a bit on margins and proceed to M2M. We will understand M2M completely and come back again to margins. We will then relook at margins keeping M2M in perspective. But before we move to M2M, I would like you to keep the following points in the back of your mind –

  1. At the time of initiating the futures position, margins are blocked in your trading account.
  2. The margins that get blocked is also called the “Initial Margin.”
  3. The initial margin is made up of two components, i.e. SPAN margin and the Exposure Margin.
  4. Initial Margin = SPAN Margin + Exposure Margin
  5. Initial Margin will be blocked in your trading account for how many days you choose to hold the futures trade.
    1. The value of the initial margin varies daily as it depends on the futures price.
    2. Remember, Initial Margin = % of Contract Value
    3. Contract Value = Futures Price * Lot Size
    4. The lot size is fixed, but the futures price varies every day. This means the margins also vary every day.

So, for now, remember just these points. We will go ahead to understand M2M, and then we will come back to margins to complete this chapter.

5.3 – Mark to Market (M2M)

As we know, the futures price fluctuates daily, under which you either stand to make a profit or a loss. Marking to market or mark to market (M2M) is a simple accounting procedure which involves adjusting the profit or loss you have made for the day and entitling you the same. As long as you hold the futures contract, M2M is applicable. Let us take up a simple example to understand this.

Assume on 1st Dec 2014 at around 11:30 AM; you decide to buy Hindalco Futures at Rs.165/-. The Lot size is 2000. 4 days later, on 4th Dec 2014, you decide to square off the position at 2:15 PM at Rs.170.10/-. Clearly, as the calculation below shows, this is a profitable trade –

Buy Price = Rs.165

Sell Price = Rs.170.1

Profit per share = (170.1 – 165) = Rs.5.1/-

Total Profit = 2000 * 5.1

= Rs.10,200/-

However, the trade was held for 4 working days. Each day the futures contract is held, the profits or loss is marked to market. While marking to market, the previous day closing price is taken as the reference rate to calculate the profit or losses.

Day Closing Price
1st Dec 2014 168.3
2nd Dec 2014 172.4
3rd Dec 2014 171.6
4th Dec 2014 169.9

The table above shows the futures price movement over the 4 days the contract was held. Let us look at what happens on a day to day basis to understand how M2M works –

On Day 1 at 11:30 AM, the futures contract was purchased at Rs.165/-, clearly after the contract was purchased, the price has gone up further to close at Rs.168.3/-. Hence profit for the day is 168.3 minus 165 = Rs.3.3/- per share. Since the lot size is 2000, the net profit for the day is 3.3*2000 = Rs.6600/-.

Hence the exchange ensures (via the broker) that Rs.6600/- is credited to your trading account at the end of the day.

  1. But where is this money coming from?
    1. Obviously, it is coming from the counterparty. Which means the exchange is also ensuring that the counterparty is paying up Rs.6600/- towards his loss
  2. But how does the exchange ensure they get this money from the party who is supposed to pay up?
    1. Obviously, through the margins that are deposited at the time of initiating the trade. But more on this later.

Now here is another important aspect you need to note – from an accounting perspective, the futures buy price is no longer treated as Rs.165 but instead, it will be considered as Rs.168.3/- (closing price of the day). Why is that so, you may ask? The profit earned for the day has been given to you already using crediting the trading account. So you are fair and square for the day, and the next day is considered a fresh start. Hence the buy price is now considered at Rs. 168.3, which is the closing price of the day.

On day 2, the futures closed at Rs.172.4/-, clearly another day of profit. The day’s profit would be Rs.172.4/ – minus Rs.168.3/- i.e. Rs.4.1/- per share or Rs.8,200/- net profit. The profits that you are entitled to receive is credited to your trading account, and the buy price is reset to the day’s closing price, i.e. 172.4/-.

On day 3, the futures closed at Rs.171.6/- which means concerning the previous day’s close price, there is a loss to the extent of Rs.1600/- (172.4-171.6) * 2000. The loss amount will be automatically debited from your trading account. Also, the buy price is now reset to Rs.171.6/-.

On day 4, the trader did not continue to hold the position through the day but rather decided to square off the position mid-day 2:15 PM at Rs.170.10/-. Hence concerning the previous day’s close, he again made a loss. That would be a loss of Rs.171.6/- minus Rs.170.1/- = Rs.1.5/- per share and Rs.3000/- (1.5 * 2000) net loss. Needless to say, after the square off, it does not matter where the futures price goes as the trader has squared off his position. Also, Rs.3000/- is debited from the trading account by the end of the day.

Now, let us just tabulate the value of the daily mark to market and see how much money has come in and how much money has gone out –

Day Ref Price for M2M Closing Price Daily M2M
1st Dec 2014 165 168.3 + Rs.6,600/-
2nd Dec 2014 168.3 172.4 +Rs.8,200/-
3rd Dec 2014 172.4 171.6 -Rs.1,600/-
4th Dec 2014 171.6 & 170.1 169.9 – Rs.3,000/-
Total +Rs.10,200/-

Well, if you summed up all the M2M cash flow, you will end up the same amount that we originally calculated, which is –

Buy Price = Rs.165/-

Sell Price = Rs.170.1/-

Profit per share = (170.1 – 165) = Rs.5.1/-

Total Profit = 2000 * 5.1

= Rs.10,200/-

So, the mark to market is just a daily accounting adjustment where –

  1. Money is either credited or debited (also called daily obligation)  based on how the futures price behaves.
  2. The previous day close price is taken into consideration to calculate the present-day M2M.

Why do you think M2M is required in the first place? Think about it – M2M is a daily cash adjustment by which the exchange drastically reduces the counterparty default risk. As long a trader holds the contract, the exchange by the M2M ensures both the parties are fair and square daily.

Keeping this basic concept of M2M, let us now move back to relook at margins and see how the trade evolves during its life.

5.4 – Margins, the bigger perspective

Let us now relook at margins keeping M2M in perspective. As mentioned earlier, the margins required to initiate a futures trade are called “Initial Margin (IM)”. Initial margin is a certain % of the contract value. We also know –

Initial Margin (IM) = SPAN Margin + Exposure Margin

Every time a trader initiates a futures trade (for that matter, any trade), few financial intermediaries work in the background, ensuring that the trade carries out smoothly. The two prominent financial intermediaries are the broker and the exchange.


If the client defaults on an obligation, it obviously has a financial repercussion on both the broker and the exchange. Hence if both the financial intermediaries have to be insulated against a possible client default, they need to be covered adequately using a margin deposit.

In fact, this is exactly how it works – ‘SPAN Margin’ is the minimum requisite margins blocked as per the exchange’s mandate, and ‘Exposure Margin’ is the margin blocked over and above the SPAN to cushion for any MTM losses. Do note both SPAN and Exposure margin are specified by the exchange. So at the time of initiating a futures trade, the client has to adhere to the initial margin requirement. The exchange blocks the entire initial margin (SPAN + Exposure).

SPAN Margin is more important between the two margins as not having this in your account means a penalty from the exchange. The SPAN margin requirement must be strictly maintained as long as the trader wishes to carry his position overnight/next day. For this reason, SPAN margin is also sometimes referred to as the “Maintenance Margin”.

So how does the exchange decide what should be the SPAN margin requirement for a particular futures contract? Well, they use an advance algorithm to calculate the SPAN margins daily. One of the key inputs that go into this algorithm is the ‘Volatility’ of the stock. Volatility is a very crucial concept; we will discuss it at length in the next module. For now, just remember this – if volatility is expected to go up, the SPAN margin requirement also goes up.

Exposure margin, which is an additional margin, varies between 4% -5% of the contract value.

Now, let us look at a futures trade, keeping both the margin and the M2M perspective. The trade details are as shown below –

Particular Details
Symbol HDFC Bank Limited
Trade Type Long
By Date 10th Dec 2014
Buy Price Rs.938.7/- per share
Sell Date 19th Dec
Sell Price Rs.955/- per share
Lot Size 250
Contract Value 250*938.7 = Rs.234,675/-
SPAN Margin 7.5% of CV = Rs.17,600/-
Exp Margin 5.0% of CV = Rs.11,733/-
IM (SPAN + Exposure) 17600 + 11733 = Rs.29,334/-
P&L per share Profit of Rs.16.3/- per share (955 – 938.7)
Net Profit 250 * 16.3 = Rs.4,075/-

If you are trading with Zerodha, you may know that we provide a Margin calculator that explicitly states the SPAN and Exposure margin requirements. Of course, at a later stage, we will discuss the utility of this handy tool in detail. But for now, you could check out this margin calculator.

Keeping the above trade details in perspective, let us look at how the margins and M2M plays a role simultaneously during the life of the trade. The table below shows how the dynamics change on a day to day basis –


I hope you don’t get intimidated looking at the table above; in fact, it is quite easy to understand. Let us go through it sequentially, day by day.

10th Dec 2014

Sometime during the day, HDFC Bank futures contract was purchased at Rs.938.7/-. The lot size is 250. Hence the contract value is Rs.234,675/-. As we can see from the box on the right, SPAN is 7.5%, and Exposure is 5% of CV, respectively. Hence 12.5% of CV is blocked as margins (SPAN + Exposure); this works up to a total margin of Rs.29,334/-. The initial margin is also considered as the initial cash blocked by the broker.

Going ahead, HDFC closes at 940 for the day. At 940, the CV is now Rs.235,000/- and therefore, the total margin requirement is Rs.29,375/- which is a marginal increase of Rs.41/- compared to the margin required at the time of the trade initiation. The client is not required to infuse this money into his account as he is sufficiently covered with an M2M profit of Rs.325/- which will be credited to his account.

The total cash balance in the trading account = Cash Balance + M2M

= Rs.29,334 + Rs.325

= Rs.29,659/-

Clearly, the cash balance is more than the total margin requirement of Rs.29,375/- hence there is no problem. Further, the reference rate for the next day’s M2M is now set to Rs.940/-.

11th Dec 2014

The next day, HDFC Bank drop by Rs.1/- to Rs.939/- per share, impacting the M2M by negative Rs.250/-. This money is taken out from the cash balance (and will be credited to the person making this money). Hence the new cash balance will be –

= 29659 – 250

= Rs.29,409/-

Also, the new margin requirement is calculated as Rs.29,344/-. Clearly, the cash balance is higher than the margin required; hence there is nothing to worry about. Also, the reference rate for the next day’s M2M is reset at Rs.939/-

12th Dec 2014

This is an interesting day. The futures price fell by Rs.9/- taking the price to Rs.930/- per share. At Rs.930/- the margin requirement also falls to Rs.29,063/-. However, because of an M2M loss of Rs.2250/- the cash balance drops to Rs.27,159/- (29409 – 2250), which is less than the total margin requirement. Since the cash balance is less than the total margin requirement, is the client required to pump in the additional money? Not really.

Remember, between the SPAN and Exposure margin; the most sacred one is the SPAN margin. Most brokers allow you to continue to hold your positions as long as you have the SPAN Margin (or maintenance margin). The moment the cash balance falls below the maintenance margin, they will call you asking you to pump in more money. In the absence of which, they will force close the positions themselves. This call that the broker makes requesting you to pump in the required margin money is also popularly called the “Margin Call”. If you are getting a margin call from your broker, it means your cash balance is dangerously low to continue the position.

Going back to the example, the cash balance of Rs.27,159/- is above the SPAN margin (Rs.17,438/-); hence there is no problem. The M2M loss is debited from the trading account, and the reference rate for the next day’s M2M is reset to Rs.930/-.

Well, I hope you have got a sense of how both margins and M2M come into play simultaneously.  I also hope you can appreciate how under the margins and M2M, the exchange can efficiently tackle a possible default threat. The margin + M2M combination is virtually a foolproof method to ensure defaults don’t occur.

Assuming you are getting a sense of the dynamics of margins and M2M calculation, I will now take the liberty to cut through the remaining days and proceed directly to the last day of trade.

19th Dec 2014

At 955, the trader decides to cash out and square off the trade. The reference rate for M2M is the previous day’s closing rate which is Rs.938. So the M2M profit would Rs.4250/- which gets added to the previous day cash balance of Rs.29,159/-. The final cash balance of Rs.33,409/- (Rs.29,159 + Rs.4250) will be released by the broker as soon as the trader squares off the trade.

So what about the overall P&L of the trade? Well, there are many ways to calculate this –

Method 1) – Sum up all the M2M’s

P&L = Sum of all M2M’s

= 325 – 250 – 2250 + 4750 – 4000 – 2000 + 3250 + 4250

= Rs.4,075/-

Method 2) – Cash Release

P&L = Final Cash balance (released by broker) – Cash Blocked Initially (initial margin)

= 33409 – 29334

= Rs.4,075/-

Method 3) – Contract Value

P&L = Final Contract Value – Initial Contract Value

= Rs.238,750 – Rs.234,675


Method 4) – Futures Price

P&L = (Difference b/w the futures buy & sell price ) * Lot Size

Buy Price = 938.7, Sell Price = 955, Lot size = 250

= 16.3 * 250

= Rs. 4,075/-

As you can notice, either of which ways you calculate, you arrive at the same P&L value.

5.5 – An interesting case of ‘Margin Call.’

For a moment, let us assume the trade was not closed on 19th Dec, and in fact, carried forward to the next day, i.e. 20th Dec. Also, let us assume HDFC Bank drops heavily on 20th December – maybe an 8% drop, dragging the price to 880 all the way from 955. What do you think will happen? In fact, can you answer the following questions?

  1. What is the M2M P&L?
  2. What is the impact on cash balance?
  3. What is the SPAN and Exposure margin required?
  4. What action does the broker take?

I hope you can calculate and answer these questions yourself; if not, here are the answers for you –

  1. The M2M loss would be Rs.18,750/- = (955 – 880)*250. The cash balance on 19th Dec was Rs. 33,409/- from which the M2M loss would be deducted, making the cash balance Rs.14,659/- (Rs.33,409 – Rs.18,750).
  2. Since the price has dropped, the new contract value would be Rs.220,000/- (250*880)
    1. SPAN = 7.5% * 220000 = Rs.16,500/-
    2. Exposure = Rs.11,000/-
    3. Total Margin = Rs.27,500/-
  3. Clearly, since the cash balance (Rs.14,659/-) is less than SPAN Margin (Rs.16,500/-), the broker will give a Margin Call to the client, or in fact, some brokers will even cut the position in real-time as and when the cash balance drops below the SPAN requirement.

Key takeaways from this chapter

  1. A margin payment is required (which will be blocked by your broker) as long as the futures trade is live.
  2. The margin blocked by the broker at the time of initiating the futures trade is called the initial margin.
  3. Both the buyer and the seller of the futures agreement will have to deposit the initial margin amount.
  4. The margin amount collected acts as leverage, as it allows you to deposit a small amount of money and take exposure to a large value transaction.
  5. M2M is a simple accounting adjustment; the process involves crediting or debiting the daily obligation money in your trading account based on how the futures price behaves.
  6. The previous day closing price figure is taken to calculate the current day’s M2M.
  7. SPAN Margin is the margin collected as per the exchanges instruction, and the Exposure Margin is collected as per the broker’s requirement
  8. The SPAN and Exposure Margin are determined as per the norms of the exchange.
  9. The SPAN Margin is popularly referred to as the Maintenance Margin.
  10. If the margin account goes below the SPAN, the investor must deposit more cash into his account if he aspires to carry forward the future position.
  11. The Margin Call is when the broker requests the trader to infuse the required margin money when the cash balance goes below the required level.


  1. Thiyagu says:


    Thanks for your outstanding work. The content and the presentation is really awesome and it is priceless.

    I am yet to start Futures trading and I am sure this material will help me a lot. I am afraid in Stock futures because, stocks at times if goes for a correction, they will in the correction mode even for months and if I am long without clue, I might take severe loss. So I thought Index futures is better because, even if it corrects for a week or 2 at least next month it may turn. ( exceptions will be there). For stocks you say the specific % as SPAN and Exposure, what about Nifty and Bank Nifty? what is the SPAN and Exposure percentage, do we have this in NSE website?

    I hope you will include, volatility and Open interest analysis in the upcoming chapters

    All the best

    • Karthik Rangappa says:

      Thanks, I hope you will get the required conviction to trade futures confidently with this module 🙂

      The next chapter (Margins Calculator) will have these details. it will be updated sometime this week, so you could check that out. Yes, we will cover volatility, open interest, and many other things topics as well. Please stay tuned.

      • Aijaz Ali says:

        If I have 0 balance in my account. Will the future share be square off?

      • MUTHUKUMAR says:

        I admire the clarity and the precise quality, your teachings offer to learners as well as stalwarts! I have a doubt.Assume that there are 50,00,000 shares of a company getting traded in the market. ( market cap/no of shares in the market).
        Total no of shares traded in the market = No fo shares in equity + No fo shares in Futures + no of shares in options etc
        Is it the futures and option quantity of shares ( lot size x no fo lots ) is a just a notional no that has no boundaries. In other words, can I ask exchange to deliver my ‘futures shares’ on expiry ( in case of buy) instead of cash settlement.


        • Karthik Rangappa says:

          Total no of shares traded in the market = No fo shares in equity + No fo shares in Futures + no of shares in options —-> this is not correct, because whatever gets traded in the F&O market is notional value.

  2. Monil says:

    In the above example the span value too keeps on changing . So now even if the CV changes to 1.5 lacs wouldn’t this mean that the span too changes and thus the requirement to pump in more money or there will be square off dosen’t seem valid as stated above. As for any amount lower than this also would mean that the span margin required is also lower .

    • Karthik Rangappa says:

      True. In fact you maybe surprised to know exchange updates the margin requirements close to about 5 times a day! But from my experience this hardly has any impact on margin required, unless there is a drastic movement in the prices. Under such circumstances one would need to pump in more money towards margin requirements.

  3. Monil says:

    Here is a situation – If i buy a future agreement and so do i have a counter party who is selling the same (shorting) . In case if the counter party square off his position and lets say that delay to find another counter party by exchange is 10 secs. During this 10 seconds if the price of the underlying changes drastically and before the the exchange finds another counterparty i decide to square off , then who is supposed to pay the profit earned over those 10 seconds. This situation is purely hypothetical but i guess it may be possible in the low liquidity futures .

    Thanks for answering my previous question kartik .

    • Karthik Rangappa says:

      When you buy obviously there is a person who is selling at the other end. It is impossible to identify if he is shorting or just squaring off an existing long position. Do note there is a difference between the two. Also, whenever you buy or sell the transaction is approved only if there is a counterparty. If there is no counter party your order will not go through. Hence as you have mentioned “In case if the counter party square off his position and lets say that delay to find another counter party by exchange is 10 secs. During this 10 seconds if the price of the underlying changes drastically and before the the exchange finds another counterparty i decide to square off , then who is supposed to pay the profit earned over those 10 seconds” This can never happen.

  4. Monil says:

    Also karthik does the margin required as quoted by the exchange imply anything ? like high margins than usually may be implying more probability of loss in the trade than chance of making profits . Also the link http://zerodha.com/open-account is not working . Not able to download application form .

    Sorry for typo in my my previous comment *Karthik

    • Karthik Rangappa says:

      Monil, the Open account link is working. If you want someone to contact you from sales, do let me know and I can put you through.

      The exchange stipulated margin is the SPAN part. Also higher margin requirement means the stock’s volatility is high hence the probability to lose money is high. It could also be due to low liquidity.

  5. Keerthan says:

    Hi Karthik, To make sure I have understood it right, I have the following questions-
    1) As long as the Span margin is intact, no money from my account would be debited?
    2) All M2M losses would be debited from the cash balance. That is if I make a loss one the day I bought the futures and further make losses for 3 continuous days, these M2M losses( of 4 days) would be debited from the Initial Margin and as long as the balance is above the Span Margin I can still trade without any infusion of funds. Am I right in understanding this?
    3) With reference to your example on the 20th of December suppose instead of a fall of 8%, there is a rise of 8% and I gain the profit of 18750. Now this gets added to the cash balance. My question is can I use this a part of this profit (of 18500), say 15000 to buy a option or something else or would the trading terminal/exchange not allow me to use these profits as long as I am trading this contract?

    • Karthik Rangappa says:

      You are right on all the counts here. Cash balance + Initial Margin should take care of your M2M obligations. For this reasons it is always advisable to have some money to cushion (cash balance) your trade. Also, the profits are released when you terminate the trade completely (at least in Zerodha) and not while you are in the trade.

  6. sridharhyd says:

    Karthi…Your explanation of M2M and Margin is exceedingly clear. Can you please explain (giving an example) from the Seller’s perspective?

    • Karthik Rangappa says:

      Thanks for your kind words. M2M from the sellers perspective works very similar to the M2M from the buyers perspetcive. Let me attempt a quick explanation here. Assume you were short on Nifty @ 8550 and you decide to hold this position for 4 days –

      Day 1 Nifty @ 8580 – Price has gone up from reference price of 8550
      Short Price – 8550
      Day 1 close price – 8580
      M2M – (30) Loss
      New reference price – 8580
      Day 2 Nifty @ 8560 – Price has come down wrt to new reference
      Short Price – 8580
      Day 2 close price – 8560
      M2M – 20 Profit
      New reference price – 8560
      Day 3 Nifty @ 8500 – Price has gone down wrt to new reference price
      Short Price – 8560
      Day 3 close price – 8500
      M2M – 60 Profit
      New reference price – 8500
      Day 4 Nifty @ 8530 – Price has gone up wrt to new reference price, you decide to close the trade
      Short Price – 8500
      Day 4 trade closure price – 8520
      M2M – 20 loss
      Overall profit –
      = -30 +20 + 60 – 20
      = 30

      Alternatively just take the difference between final buy price and short price i.e 8550 – 8520 = 30

  7. J V N Bhaskara Sarma / DV0758 says:

    Dear Sir,
    If I have a bullish view of a stock say SUNPHARMA, can I hold these contracts for a longer period say one or two years. Of course I know that I have to roll over them at the end of every month and I have to maintain sufficient margin. i.e. if I can maintain sufficient margin, is it good to maintain futures position than the underlying stock? What are the possible risks and advantages?
    Thank you,

    • Karthik Rangappa says:

      Yes technically you can hold it for upto 2 years or more…for example today can buy June 2015 contract (far month contract considering we are in April now)…and hold till June Expiry. In June you can buy September contract….so on and so forth. Like you mentioned, you need to maintain sufficient margins to sustain through M2M requirements. The advantage is that if your call on the stock is right, your gains will be massive since its a leveraged position…however if your call is wrong, the M2M will bleed your P&L.


      This will be a nice strategy to hold certain sure shot stocks in high volumes with very low margin amounts.All the contracts/series’s price needs to be in tandem.

  8. Nikunj kejriwal says:

    In Zerodha
    If the stock falls by more than margin requirement i.e 12.5% in case of Hdfc
    Will it automatically square off my position or give me a margin call ?

  9. soumya ranjan says:

    hi karthik,
    i have two douts
    1) i bought nifty 1lot with margin of 18000 and still ihave 20000 extra in my account .at same time my cash balance got less than span . will i get a margin call or since i have extra it will account it.
    2) does zerodha give margin call or will cut the position real time if cash balance < span.

    • Karthik Rangappa says:

      1) Since you have extra cash in your trading account there will not be any margin call.
      2) We usually cut the position when the balance reduces below what is required.

  10. Hi Karthik,
    There are 1, 2, & 3 months contracts available.
    As 3 month contract available and the person can come out of the agreement anytime why would the person needs to go for 1 or 2 month contracts?

    • Karthik Rangappa says:

      There are two reasons for this –

      1) The futures price of the 3rd month contract is higher than the 2nd month and 1st month….hence margin deposits gets higher.
      2) The bigger reason is liquidity. The 3rd month is not really liquid hence trading (especially in large quantities) becomes a challenge.

  11. @karthik,
    Thanks is a small word for what you are doing. I have already referred my friend to zeordha. I will add few more friends to zerodha.

  12. RA2484 says:

    Thanks for making me to understand the Futures Trade to a great extent. Your efforts are appreciated.

  13. kay kay says:

    Hi sir,
    suppose , i buy a put option for 880 @ Rs 5 with future contract of hdfc in same expiry date.
    so, what will happen when a sudden 8% fall occur and my cash balance get lower than span margin?
    do i get a margin call?
    can hold the future and option contract for another 10% down in stock without additional money to my account?

    thank u

    • Karthik Rangappa says:

      You need to ensure that the account is well funded to accommodate such volatile moves. Usually the margins quoted takes care of this..but there are time when such moves occur…and you end up getting margin calls.

      • kay kay says:

        hi sir,
        when buy a put option and buy a future contract of same script and same expiry date
        and by the time my exposure finish , my out of money option become in the money

        i one lot buy itc future for 315(margin= 23740(span)+ 15970(exposure)) and buy put option of strike price 300
        now when price falls, my exposure will get debited
        say a fall of Rs 15 , will diminish my exposure to 970
        at say time my put option will increase.
        but my question is that do i need to add more money to maintain span margin when there is another Rs 15 fall
        i think my option put will back my future.
        am i right?
        thank u

        • Karthik Rangappa says:

          When you have long futures plus long put you will get a margin benefit. So you do get that advantage. Also despite this its advisable to hold additional cash to accommodate M2M losses (if any).

          I would suggest you please check with your broker regrading the margin benefit.

  14. Siddhu says:

    Hello Nitin,
    Good morning everyone.
    Sad to hear that from November series lot size has increased in derivatives segment. Don’t you think that many small retail investors will wash out by Sebi’s this move. Ultimately liquidity problem may occur. Could you please provide approx margin details if I want to take Bank Nifty 1 lot of 30.
    Thank you.

  15. Sandhya says:

    Hello Karthik,
    You guy’s are doing wonderful job by providing such a quality, practical and very useful material which prevents for reading or going through any book on Future trading. A big thanks for creating confidence and making us competent in F&O segment. Recently SEBI have increased lot size in derivatives segment which I guess is not a good move for retail investors, Karthik I have two questions in my mind which I think you are the best person to whom I must ask
    1. Is there any liquidity threat on index like nifty and banks nifty, because I saw it on Bank nifty derivative future for November series in last trading session where candlestick pattern was showing almost negligible trades.
    2. At present Zerodha used to arrest 8% margin on Nifty and Bank Nifty, is that be continued or it will increase??
    Thanks Karthik.

  16. Rahul Gosar says:

    suppose if i buy kotak futures @ 640 and hypothetically if it goes to 0 … what is my maximum loss … 640 or 640 + initial margin

    • Karthik Rangappa says:

      Remember the initial margin is a part of the entire contract value. So in case the stock stumbles down to 640, then you would lose 640 and nothing more.

  17. manus says:

    All and all does anybody earn profit from share market or purely it is gambling or luck? Finally what is it? If any technology is there behind it then why to go to school or colleges spend huge money and waste many years and later on whole life? Better do trading and make nice living. What is your opinion on ” AUTOMATIC BUY AND SELL SIGNAL INDIACTOR SOFTWARE” providers? Does it work? No need to run brain. Buy when software tells buy and sell when it tells. Profit in pocket. Go to movie everyday. Your comments are awaited here and on [email protected]

  18. Brijesh Singh says:

    If I were to buy a futures contract worth Rs.2500000 with a margin requirement of 10% and the next day the cv fell to Rs.2000000. Would my loss be Rs.250000 (equal to the margin) or Rs.500000 ?

  19. Tilak says:

    Suppose you bought company Share ‘ABC’ in Futures with market lot 1000 at 100 Rs. Your margin must be above 10% of 1000 x 10 equals 1000 Rs. If the price of each share goes up by 5 points, your profit equals 500 Rs ( 50% profit on margin). And If the price of each share goes down by 5 points your loss equals 500 Rs ( 50% loss on margin). After you place the order, there will be charges on both sides of the trade.

    • Karthik Rangappa says:

      Yes, you are right. The trade (both buy and sell) will attract charges such as brokerage, STT, transaction charges etc.

  20. samanth ch says:

    hi sir namasthe stil i am confusing my doubt is
    exposure margin means intraday? or span means inraday?
    which margin do i required to carry forward my future contract ?
    which margin i required for intraday? span or exposure?

  21. sunny p says:

    Hi Karthik,

    I have experienced stoploss orders are hit many a times perhaps due to high volatily even when the trade is going my way. That has got me thinking so I did some research and stumbled over this article and find it more suitable than placing stop loss orders.

    I am copy pasting it here. Is it safe and doable? Pls read on.
    “Hedging a Long-Term Futures Position”
    “If your goal for the long-term futures position is focused on the long-term value of the underlying commodity, you may not want to close your position with a stop-loss order. An alternative is to hedge the long-term futures position with a short-term contract of the same futures. For example, if you long position a two-year oil futures, you could sell — take a short position — in a 3-month oil futures, protecting your long position against a short-term decline in the price of oil. While the short-term futures trade is on, the gains and losses of the two contracts — long-term and short-term — will offset each other.”

    I would like to take positions for longer time frame like 2-3 weeks.
    Can it be done?

  22. sunny p says:

    P.S. The above question was in respect to m2m margin. I just wanted to understand how does hedging futures with futures of another expiry affect m2m margin.


  23. SARATH says:

    if i am going for intraday i only care about exposure margin and span margin for cary forward please correct if i am wrong!

  24. sarath lal says:

    sir ,
    I have a doubt as per m2m yesterday close consider as a ref. point settle every day , every day settlement will happen my trade will exit every evening at the time of settlement and automatically create fresh order next morning as per m2m this process will happen till I squreoff my question is in these days where I can see my order , is still in pending order section ? and after settlement I will get the money(if it is in profit) and next day automatically debit the money for creation fresh order is it? please help? I am totally confusing

  25. sarath says:

    in mcx and currency m2m working same structure as you mentioned above ?

  26. Sibi says:


    I want to trade equity futures from exchanges outside India(NYSE). Does the concept of margin for futures exist only in India or is it available outside India as well?
    Dies zerodha offer such a service to trade futures from NYSE?
    If not, can you please be a good Samaritan and let me know where I can find the platform to trade NYSE futures from India?

  27. rohan says:

    “While marking to market, the previous day closing price is taken as the reference rate to calculate the profit or losses. ”
    If a stock closes at Rs 130 on Wednesday and on Thursday it gap up at opens at Rs140 at 9.15am.
    1. I buy it at Rs 140 and after one hours square it off at Rs 135. so I will be on loss(140-135=5) or profit (135-130=5).
    2. If I dont square it off and day closes at rs 135. In that case M2M willl be +ve or -ve?

    • Karthik Rangappa says:

      1) You will incur a loss of Rs.5/- (140-135)

      2) It will be a -ve M2M @ 135.

      • Guru says:

        Hi Karthik,

        So the base to calculate profit / loss is actually the opening price of Current day rather than closing price of previous day. Is it correct?

        Kind regards,

        • Karthik Rangappa says:

          I’d suggest you look at P&L from the perspective of the price at which you have transacted. So if you have bought something, P&L % is = Sell price – Buy Price divided by buy price.

          • Guru says:

            Got it. Thanks Karthik.

            Kind regards,

          • Karthik Rangappa says:

            Good luck, Guru. Stay profitable 🙂

          • Murali says:

            Hi I have serious concern over your statement:

            Someone asked:

            “While marking to market, the previous day closing price is taken as the reference rate to calculate the profit or losses. ”
            If a stock closes at Rs 130 on Wednesday and on Thursday it gap up at opens at Rs140 at 9.15am.
            1. I buy it at Rs 140 and after one hours square it off at Rs 135. so I will be on loss(140-135=5) or profit (135-130=5).
            2. If I dont square it off and day closes at rs 135. In that case M2M willl be +ve or -ve?

            You replied:
            1) You will incur a loss of Rs.5/- (140-135)
            2) It will be a -ve M2M @ 135.

            Again asked:
            So the base to calculate profit / loss is actually the opening price of Current day rather than closing price of previous day. Is it correct?

            You replied:
            I’d suggest you look at P&L from the perspective of the price at which you have transacted. So if you have bought something, P&L % is = Sell price – Buy Price divided by buy price.

            I have serious concern about the above:

            Consider I buy futures @ rs 135 on Day 1 (buy 135, close 135)
            Day 2 (gap up open 140, close 135) and I square it off on day 2 close price of 135.

            Then I incur a loss of rs 5 Just because of the M2M technique that was applied, it was not because of my trading activity because honestly from price standpoint I was supposed to see that from the Day 1 (when I bought) to Day 2 (when I sold) there was no price change, so whatever fluctuations – there shouldnt be any impact on my money.

            How do you think that this is not fair – I feel its fraud done by SEBI, let me know if I am wrong.

            On contrary if SEBI takes ONLY opening or ONLY closing prices for computing then surely this situation never arises because one trade cycle is a complete buy and sell, and clearly SEBI is forcing a trade on us isnt that right ?

          • Karthik Rangappa says:

            Consider I buy futures @ rs 135 on Day 1 (buy 135, close 135)
            Day 2 (gap up open 140, close 135) and I square it off on day 2 close price of 135 ——>

            I guess you are confused about how the P&L is calculated. You do not make a loss here. Your P&L is always the difference between the buy/sell price and the price at which you close the position.

  28. rohan says:

    If my holding value is Rs 1.5 lakh and I pledge my equity and with this margin I short sell future of stock x. On that day NIFTY and stock x falls drastically. At 2 pm equity value reduces to Rs 1.2 lakh( below minimum margin requirement) and in my short sell future position I am in virtual profit of Rs 50,000( as i have not squared off the position yet). What will happen in this case ? will my positions be auto squared off?

    • Karthik Rangappa says:

      Probability of equity falling 70% in one day is small as we only allow to pledge few selected stocks in case it happens and one is making profit in futures then we will inform before taking any action. But if one is loosing pledged value and also in futures in that case we will close the positions. Do remember this is specific to Zerodha, if you are with another broker you may want to check what their policy says.

  29. Raman Subramnm says:

    Thank you very much for lucid explanation. It’s very helpful for a newbie like me.I’ve read all of “Varsity” modules.Now I’ve gained enough confidence for entering in the FnO market. I’ve question on intraday pay-off in both segments (FnO) .
    Suppose I’ve got 30000 cash balance , and I buy /short (short in fut seg only)a lot of a stock/index with fut margin/call premium req of 26000 , and if I square off the position at a profitable price– after a few minutes ,
    1.When the the profit+margin will be credited to my cash balance ?
    2.When I’ll be able to enter in a trade again after squaring off the position ?
    3.Does options segment have different intraday settlement regulations ? ( in Varsity module,very vague explanation is given on intraday settlements)

    Thank you in anticipation.

    • Karthik Rangappa says:

      I’m happy to know this, makes our effort worth it 🙂

      1) Credit happens the same day, cash will be available the next day for withdraw
      2) The moment you square off your margins will be released and you can enter a new position
      3) Intraday options settlement also work the same way

  30. L.KAMALAKSHRAO says:

    I opened account only this month.Never TRADED myself in futures .But a trader in old renown DP in 2007 TRADED on my behalf and made me lose Rs 70,000/Your writeup is superb and deserve applause.Only thing we should know ,as they say,which way the wind is blowing!

  31. I referred many books to understand futures trading. Just I referred zerodha varsity to understand futures.In my view topics were explained in detailed manner even a person like me who do not know about futures can start trading .Excellant efforts.

  32. Avinash Kumar says:

    Awesome work dude. These explanations are as good as gold. Take a bow man 🙂

  33. ravi says:

    how can i play M2M, if i purchase any option and sell it next day they again i have to purchase and then sell it next day, and if not then which
    module should i use to do it.

  34. Akshaya Kumar says:

    Do brokers make more money from clients when they use margin money wrt having total value for the contract of futures in the account? Will margim be still allocated if client has entire comtract value in cash in account and do these margin requirements change from client to client ie net worth to net worth based on broker relationship and history of client? Thanks in anticipation.

    • Karthik Rangappa says:

      Brokers as such make no money with respect to margins. SPAN margin as per exchange mandate and is uniform across clients. Yes, some brokers are flexible with this based on the relationship with client, but in the long run this is not a good practise to follow.

  35. Nitin Desale says:

    If cash balance is less than span margin then why the broker do margin call, because there is exposure margin.. so what is the use of exposure..? How its work.?

    • Karthik Rangappa says:

      Margin required = Exposure Margin + SPAN Margin. Consider this example, margin for Infy = 45,000

      Span = 30,000
      Exposure = 15,000

      So you have 45K, hence you take the position.

      After you take the position, due to M2M loss, you lose 15K…then from your exposure margin 15K is gone. After this, assume you have another 2k loss…then this means the broker has to deduct 2k from the SPAN margin. But exchanges will not allow this. Hence you will have top up your account by at least 2K.

  36. Nitin Desale says:

    I got it sir..
    there is some misunderstanding about terms..

  37. Prathvi.R says:

    What is Total Margin and Margin Used ? Currently My Total Margin has +919.35 margin used has -244.90 and free cash of 10164.25. So will this Total Margin be converted into Free cash at the end of the day ? or how exactly is it ?

    • Karthik Rangappa says:

      Margin used is Span + Exposure + Unrealized P&L, also if you buy options and equity during the day then this also gets added to the margin used. You can take on other trades with free cash.

  38. Sai Sreedhar says:

    Supposing we square-off a BUY contract during the day, will the settlement happen at the closing price of the day?
    Eg. I bought a contract at 500 and Supposing I square-off before contract closure date at say CMP 600, and the closing price of that day is 605, (supposing LOT is 1000) my settlement will be done after deducting 5000?

  39. Yukesh says:

    In Zerodha margin calculator it is given like “initial margin + exposure margin” and ” total margin”.
    Which one should I consider to block, initial margin or total margin.??

  40. vishwas says:

    Can you please explain Strike Price in detail and how does it affect our purchase of Futures?

  41. abhishek kumar sah says:

    Suppose 3 futures contract of a particular stock expires in say 1 month, 2 month , 3 month. which one should be preferable to buy? what is the risk involved or the other factors to consider??

  42. YOGI says:

    How can I add Extra Margin to a Open Future Position to save myself from getting a Margin Call in Zerodha!? Secondly is margin call a automated process…i.e auto-debit from Cash Balance!!? Please explain the whole process, after Exposure Margin gets depleted in a position!!!

    • Karthik Rangappa says:

      You need to be aware of your positions, this is the only way out to get full control. You will have some leeway but once the position starts bleeding beyond SPAN then it gets cut. Yes, its an automated process.

  43. Balakrishna Chundru says:

    1. AB Nuvo has fallen from Rs.1565(11th Aug Close) to 1409.15 (12th Aug Open Price), Can you explain how future contract will be handled in this kind of scenario if there is no balance other (SPAN+EXPOSURE MARGIN) in the account?. what will be the loss? is it 750*(1565-1409.15)?
    2. Margin Calculation depends on Circuit limits?

    • Karthik Rangappa says:

      Yes, the loss is 1565-1409 = 156.

      No it does not depend on circuits. In fact derivative stocks do not have circuits.

  44. Vishal Saini says:

    Karthik Sir Could u help me with following queries??

    1: What if my margin cash balance goes below span and I have money in my zerodha account and …will zerodha automatically transfer required extra money from my account to cash balance to continue contract or zerodha will first call and ask for my permission to transfer????

    2: Say Span margin = 15k
    Cash balance = 14k and I refuse to infuse money required then will I get my 14k back in account or not once zerodha close contract???

  45. madhavjj says:

    Madhav Joshi
    I suppose a common trader is not allowed to short cell shares if he does not have them in his dp. If he does this, then he has to pay penalty for such trade. So ‘Sell Today- Buy Tomorrow’ is strictly not allowed.

    Only way common trader can short cell any stock is through ‘Futures’.
    This is one of the most important uses of stock futures.
    Your above article does not mention this aspect any where. It will be very educational if you emphasize on this point when you talk about shorting concepts.

    Madhav Joshi

    • Karthik Rangappa says:

      No, one can short the stock on a intraday basis, there is no restriction on this. Of course, in F&O you can short and carry forward the position overnight.

  46. Anil says:

    What is the formula for Option MTM calculation? Option MTM is calculated using Underlying Close price or Premium close price.

  47. anish says:

    sir if i brought a future contract and i dosent square off it inor before expiary date what will happen if i dont have mony to exicute the contract

    • Karthik Rangappa says:

      Moment the margin dips below the SPAN requirement you will be asked to top up or square off. If you do not do it yourself then your broker may be forced to take the action on your behalf.

  48. Abhishek v says:

    Sir if I have taken a commodity contract which is 10000 and no extra balance in my trading account or having less amount in my trading account, and what if the commodity prices go down and incur losses will the contract get closed or will I lose the whole margin money? Will I lose the 10000 rupees???

    • Karthik Rangappa says:

      If the commodity goes down, you will be required to fulfill the margin requirement, else your position will be squared off.

  49. Thahazeeb says:

    ” SPAN Margin is more important as not having this in your account means a penalty from the exchange”
    When would this situation arise as I thought it is not even possible to enter into a trade without having sufficient margin?

  50. Praful Bhat says:

    Nov 4th- Bought futures MIS of Jindal Steel @70.10 (9000 lot size). Converted to NRML. Day closing is 69.10, loss is 9k + brokerage.
    Currently, Account shows in Kite- Margin Available- 24,386.81, Margin used- 93401.28, Account Vaule- 1,17,788.09. Span- 58,860, Exposure- 31,841.28.
    Q backend shows- Cash Balance- 23,333.9 and blocked margin- 94,455.00.
    My Question- 1. If the stock goes further down, say @68.10 (another loss of 9000), will the money be deducted from Cash balance? Blocked Margin? or SPAN? or Exposure?
    2. Why does the cash balance amount is different in Kite and Q? or is it that I missing something here?
    3. If i keep the contract with me despite falling price, Which value should I keep an eye on to avoid auto square off?
    4. If I make the cash balance zero, will it invite auto square off (assuming the price is at 69.10)?

    • Karthik Rangappa says:

      1) The free cash balance in your account will be used to fund the position. In case you do not have free balance and the position makes a loss to an extent that it goes below SPAN then the position will be automatically squared off. So make sure you have enough margins over and above the SPAN requirement.

      2) Can you check this again?

      3) SPAN margin requirement

      4) As I said, as long as you have enough margins over and above SAPN, it should be ok.

  51. Praful Bhat says:

    Thanks for the reply Karthik. Two more-
    1. Assuming cash balance is zero, SPAN amount will go down each day as per the losses, right?
    2. MIS Futures margin requirement is 40% of NRML margin, Right?

  52. neel.parekh says:

    Very simplified… If you can’t understand from here then you may never able to learn from anywhere.

  53. Hitesh says:

    What if the following day price falls so low that the loss suffered is greater than the cash balance? Then there is a possibility of (partial) default right?

    • Karthik Rangappa says:

      In such a situation your position will be cut. But this really depends on your broker.

      • Murali says:

        I think it is a very valid Question.

        Just because of the fact that for my broker to square off my position, it must find a buyer that buys my contract. Lets say in the rarest of cases, I have seen circuit limit of 20 percent(as against a span + exposure of 12.5 percent), for stock that was listed in futures tested that in intraday, and it was long time back I dont really remember its name.

        What really happens when that happens? are there any contingency plans? will the broker pockets the losses or SEBI and is investor put behind bars for not paying up?

  54. GYK says:


  55. p.shunmugaperumal says:

    if i have my balance less than a span margin then my open position will be automatically squared off known
    i cannot place a oder i have my balances less than a span margin
    if both case are possible then how a exchange can impose penalty on trader
    if i have my balance less than span margin how much penality will be

    • Karthik Rangappa says:

      1) Yes, if you have a balance less than SPAN, you cannot place an order.

      2) In case you please an order, and after placing the order…due to losses, if you balance goes below the SPAN, then your positions will be squared off.

  56. SAYAN SEN says:

    Hi! I have a query on trading on margin. If I have Rs. 5,000 in my account, and I buy some shares in intraday worth Rs. 25,000, sell them and make a profit of Rs. 100, will I get to keep all of the profit or will a portion of it be claimed by Zerodha? If so, then how much? I am new to trading, so please help… Thanks!

  57. Vivek says:

    Suppose If I buy a future contract of Divis lab today at let’s say Rs. 1000 and let’s assume that the margin required is Rs. 70000 (this is the only amount in my account). Now if due to some bad news lets say USFDA notice, the stock falls to 750 for the same day, Then what’s my loss??

    1. 70,000(Which is the only amount in my account)
    2. 250*600 lot size = 1,50,000 which means the account balance will be( -75,000)

    If ur answer is 2nd option then how are u going to get -75,000 from me?

  58. SAYAN SEN says:

    Hi! I am a novice trader and have understood the concept of margin trading, but I have one query. I have around Rs. 4k in my account, and I used to trade stocks on margin everyday and make a profit of >Rs. 100 most of the time, but there were occasional losses also, unfortunately. My question to you is, do I need to pay any extra charge towards some kind of a contractual obligation for trading on margin? I receive daily margin statements via emails and the sub-total says “(4412.66)” in the last column. Does that mean that I need to pay Rs. 4412.66? Or something else that I do not know about? I have already checked out the article at support.zerodha.com/kb/faq.php?id=156 , but failed to understand it fully. Please help, I’m really very worried. 🙁

    • Karthik Rangappa says:

      Nothing of that sorts, Sayan 🙂

      All the debits and credits happen automatically from (and to) your trading account. You need not have to worry about it.

      Good luck and stay profitable.

      • SAYAN SEN says:

        Thank you so much! 🙂

        • Karthik Rangappa says:


          • SAYAN SEN says:

            BTW, Karthik. I have one small query which is of a slightly different topic. As you might know, the price of Kushal Tradelinks has been falling everyday, and I had bought them at Rs. 597.95. However, I am not being able to sell them lately, and I have suffered a huge loss. Can you please tell me how to go about it? It’s going to fall even further. 🙁

          • Karthik Rangappa says:

            Sayan – I’m rally sorry, I wont be able to here here. I do not follow the stock you mentioned…and I dont know any fundamentals of it. So, I’m afraid I cant help.

            Good luck and I hope you recover your losses soon.

  59. dalbir singh says:

    Sir, i have this question. As you must be knowing, back in June 2016, the pound had a great fall during indian market afterhours. Now on 23rd June, 2016, the GBP opened at 99.75, suppose one bought one lot of futures contract which would approximately cost 2600 rupees on that day. So one pays Rs. 2600 for one lot GBP 1000*99.75=99750 (total value). The next day GBP opened at 91.1. So that makes the contract value as 1000*91.1= 91100. So total loss in contract value is 99750-91100 = 8650 Rs. Lets say one has kept cash in his account as 20% of contract value i.e. in this case 20% of Rs. 2600 i.e. 520 rupees. I do understand that you will deduct that cash from the clients account as loss but even if you do so the total amount client has paid is 2600 + 520 = 3120 Rs, which actual loss made in the contract value is 8650 Rs. The person on the other side (the guy who shorted the currency the previous day) is supposed to be paid 8650, but the amount in buying clients account was only 3120. Who pays the rest amount (i.e. 8650-3120 = 5530 Rs.) to the short seller?

    • Karthik Rangappa says:

      Dalbir, remember all the amount lost by a market participant is always paid by the market participant. On the other hand, if someone is making that money, then the exchange will ensure that the money is entitled to him. The exchange’s margin and risk management mechanisms ensures this happens.

  60. Madhan says:

    Can you please clarify, why intra-day unrealized losses are added to the Margin and deducted from Free cash?

    For ex, Say I have 91,000 as the total value in my account, if I am short on current month Bank Nifty Futures 1 lot, The approx Margin will be 70,000. and free cash will be 21,000. Intra-day, if the market moves against my position and goes up by 250 points (which happens in BankNifty and happened on April 18th), there is a unrealized loss of 250* 40 = 10000. This 10,000 is reduced from my Free Cash and shown under margin. This reduces my Free cash to 11,000 and diminishes my opportunity to further trade in other F&O intra-day (Say Nifty MIS Product). Before the close of the Market, the Bank Nifty may reverse (like it did on April 18th) and go in favour of my position. Because this unrealized intra-day loss was blocked out of Free cash, I could not make other trades, which would have been possible otherwise.

    Why is this being done?

    I am just wondering what would have happened to my position if had 75000 to begin with and there was a unrealized intraday loss 10,000 in the above example.

    With my earlier brokerage, I have seen them show Position Margin, Minimum Margin and current Margin. The current Margin reflects unrealized profit or losses from the position margin. If the current Margin goes below Minimum margin, A margin call is made. If there no sufficient fund available to meet the margin call, the position is squared off. For ex, For Bank Nifty, the position margin would be around 70,000, Minimum margin would be 50,000. If the current margin goes below 50,000 (intraday loss of 20,000), A margin call is made. The unrealized intra-day loss has not reduced my free cash in my earlier brokerage.

    Exposure Margin is supposed to cover for intraday volatility and losses (in the worst case). With my earlier brokerage, during M2M if I had a loss and if there is no free cash available, exposure margin is used settle my loss. The next day morning, if I did not bring in more money to maintain SPAN + Exposure margin, my position is automatically squared off at market open.

    A disappointed Zerodha Client

    • Karthik Rangappa says:

      Madhan, thanks for writing. I understand your concern. I’d suggest you read through our margin policy – https://zerodha.com/policies-and-procedures. I must tell you that we operate a very conservative risk management system. This is good for both the clients and us in the long term.

      1) In the example quoted, the margin requirement is 70K, and free cash is 20K. Assume we deduct cash (intraday unrealized loss) from your margins (70K), and you take up few more positions from the free cash (20K). You go ahead and carry forward the bank nifty position for the next day – wouldn’t you be short of the margin required?

      2) The same is true for MIS positions as well – in fact, if you think about it, deducting cash from free cash gives you the flexibility to convert your position to NRML

      3) We do not give out a margin call per say, but we do send out real time SMS when your positions starts making steep losses

      4) Generally speaking, if the position starts making a loss, then we first deduct the money from free cash, then start deducting from margin.

      Good luck and stay profitable.

      • Madhan says:

        I have gone through the Margin policy and I dont suppose it covers the specific aspect in question. I could find only the below WRT to Normal Position Margins:
        NRML (Normal)
        To take position as NRML you will need the complete exchange stipulated margin, but once you take a position as NRML you can hold the position till expiry, provided you’re maintaining such stipulated Exchange margins until expiry.

        I does not say if the exchange stipulated margin to be maintained at “ALL” times.

        In essence, by deducting the free cash, it is like you are making a margin call inspite of having exposure margin for intraday volatility. Does the exchange stipulte the need to hold extra cash (in addition to SPAN + Exposure) to cover for intraday unrealized losses.

        Can you please explain what would happen in case, I did not have free cash to cover for intraday unrealized loss?


        • Karthik Rangappa says:

          Margins have to be maintained all the time – as long as you hold the positions, Madhan.

          No, exchange does not stipulate for extra cash to be maintained over and above the margin required. This is basically the broker’s risk policies at play. Cutting the free cash flow gives you the advantage of holding the positions overnight. Btw, if in the case you did not have the extra cash, then the money would go from the margins blocked, reducing your holding power for the position.

  61. Sahil says:

    Sir What do u mean by cash balance in the above context here..?
    Suppose I wanna long on ABC LTD (weekly trade)
    Lot size is 1500 , span is 10% , exposure is 5%
    Buy price​ is 377.4, target price is 383.25 , stop loss is 375.45
    My initial margin would be 84915 for 1 lot my risk in this trade is 2925.
    How much money I need to maintain in my trading a/c balance coz (I thought you mean cash balance as trading a/c balance in the above context)

    • Karthik Rangappa says:

      You need to have 84915 in your trading account, which will be blocked as the initial margin for the trade. Here the 84915 is referred to as the cash balance.

      • Sahil says:

        Sir you mean that cash balance in the above table is the Initial margin( assumed block at the time of entry) remaining to exchange after adjusting daily M2M @closing price ?
        For example my risk in trade which I mentioned above is 2925…so do i need to maintain my risk amount in my trading account balance ?

        • Karthik Rangappa says:

          Yes. Its always good to have that extra cash as buffer in you cash balance.

          • Sahil says:

            Thank you Sir for explaining.
            the study material is very good. But I feel trading ( intraday, daily, swing, weekly) is all about risk management and money management. A trader can’t be right always but even one manage to be 50 % right one can make good money by proper risk management strategy like taking small losses & calculating position size in a way if the trade goes in his favor he’ll make 2000 and if not he loose 1000 like 2:1 reward to risk. Many brokers out there don’t give quality stuff to clients they just give quantity in every possible way like poor study material, research stocks alert, etc …so they can generate more and more brokerage, but after reading varsity post I think the case here is different. I request you to make risk management modules and money management modules for us so that we can manage our risk more efficiently.
            And please can you explain risk management strategies for daily , swing, weekly, intraday trades in more detail in the modules and for fno risk management. I want you to help us as a trader not as a broker.
            Thank you

          • Karthik Rangappa says:

            Sahil, we have already started work on Risk management. I can confidently tell you that the content we are putting in the risk management module is highly sophisticated. This module is work in progress, but we already have 6 chapters on it. Please check this – http://zerodha.com/varsity/module/trading-psychology-and-risk-management/

  62. Sahil says:

    Thank you sir for listening…(just out of curiosity Sir are you replying yourself or your assistant or staff reply to our queries LOL :D)
    1. Sir Can you recommend GOOD BOOKS for TRADERS in categories like for beginner, technical, advance or something you think one should definitely read. It will be very helpful for Traders to understand things with more depth.
    2. And If I ask you which Books changed your life or perspective or you think one should definitely read in life or taught you the greatest lesson in life, Which BOOKS will you recommend then ? ( I know the 2nd question is off topic but plz share )

    • Karthik Rangappa says:

      Sahil, I’m not big enough to have assistance and all, I do answer them myself 🙂

      1) Lots of good books. Begin with Trading for a Living by Alxender Elder.
      2) Not too many, honestly 🙂

  63. Yugesh says:

    Hello Karthick,
    1.In futures, in a BO trade does the stop loss depends on the cash margin available in my account. Like more cash in my account will mean I can place a much higher SL.
    2. Please also let me know if both Buy and Sell positions can be taken simultaneously using BO.

    • Karthik Rangappa says:

      1) No, SL does not depend on that. It depends on the stock’s volatility and range

      2) Yes, that is in fact the objective of a BO.

  64. Ayush says:

    Sir, i have some questions;

    Suppose, Mohan buying ABC futures at the:
    Buy price: 500
    Lot size: 200
    Contract value: 100000
    Margin value: 13000 [SP(8% of CV)- 8000, EV(5% of CV)=5000]
    Target value:512
    Stop loss: 495
    Trading account balance: 15000
    Leverage: 13%
    1) what is the cash balance in this situation?
    2) will cash automatically deducted from my trading account and transferred or blocked as margin value, if the span value is below cash balance?
    3) Margin call comes when my Exposure margin comes to end, am i right?
    4) what if there is less cash balance than span margin(8000) is left in my account will that money further go down or left as it is?
    Sir, I am confused about cash balance, what does it mean? Is it the margin value of my whole trading account balance?
    Can you explain cash balance in more easy way?

    • Ayush says:

      From above situation;
      5)what if there will be 10% fall in futures price, does it mean there will be Rs10000 fall in margin value of Rs 13000?

    • Karthik Rangappa says:

      1) Free cash will be 2000
      2) Yes – once margins go below the stipulated level, it will be deducted from free cash.
      3) No margin call from Zerodha, but you may get from other brokers. However, we do send out an SMS on a realtime basis when margins go below the stipulated level
      4) Position will be closed

      • Ayush says:

        In above situation, My cash balance(2000) is already less than Span margin(5000);
        1. What does this mean?
        2. Will i not able to enter the contract?

        • Karthik Rangappa says:

          1) It means that you cannot take the position, or it you already have a position, you cannot carry it over.
          2) No, you cannot.

  65. Ayush says:

    From HDFC example, does cash balance(29659) means that the total amt in trading a/c is 29659+29334?

  66. Sukalpa Bhattacharjee says:


    In Zerodha margin calculator there are two tabs for futures :-
    1) F&O (Futures and Options).
    2) Equity Futures.
    What is the difference between them ?

    If I want to buy one lot of JUN 17 of stock X , using leverage/margin how do I do that in KITE ?
    Should I select MIS or CNC ? If I select MIS , shouldn’t it be considered for day trading ?

    • Karthik Rangappa says:

      They are pretty much the same. While F&O equity gives you the exact margin required, the other tells you the kind of leverage you get. For added leverage, always use MIS. But MIS is for intraday orders only. If you want to buy a stock and hold it for few days, then there is no leverage provided.

  67. Ricky Gupta says:

    I Buy a Future contract for a total margin of Rs-84227 today {(span-50500)+(Exposure-33727) ..Free cash-35628
    1)Suppose if the contract moves against my presumptions, then isn’t the amount should be deducted from exposure margin instead of free cash balance.?
    2) What is the need of exposure margin if loses are deducting from margin available?
    3) What if i used my all free cash to buy stock from equity cash segment? Will M2M loses/gain be adjust from Exposure?
    4) Is M2M for a nrml order is adjusted at the end of day ? Or It is in line with real fluctutaion of the the contract.

    • Karthik Rangappa says:

      1) We first deduct from free cash
      2) If its deducted from the exposure margin, then the chances of your margin going below SPAN is higher, hence the risk of the position being closed by the broker is higher
      3) Yes
      4) Yes, but if the scrip is volatile then there could be a real time increase in margins

      • Ricky Gupta says:

        Thank you for the answers.
        Just for the clarification, Am I right when I say-
        the future contact will be automatically square off when M2M loses reach at a point greater than exposure margin and thus preventing any deduction from the span margin. Also, all the gains of the day from the contract will be added to Free cash and are allowed to use for any Other transaction.

        • Karthik Rangappa says:

          Yes, sort of Ricky. Moment your margins goes below SPAN, your position will be cut.

          • Guru says:

            Hi Karthik,

            From the question above – I understand that M2M loss will be first deducted from the the free cash (thus restricting the ability to buy any other stock). Would the same happen to M2M profit as well I.e., would it be added to free cash? If added – I’m assuming that amount can be used to buy other stocks. Is it right?

            Kind regards,

          • Karthik Rangappa says:

            Yes, it would be.

  68. Rahul says:

    Does Zerodha gives me a margin call or it will square off my future position directly?

  69. Mohammed ibrahim says:

    I have a doubt here. See as you explained when the price falls its deducted from my initial amount + m2m. But what if he loss is above all this? Like the required amount is far above whats in my account? What happens then? Like for hdfc if its not 8% loss. If it directly faced a 25% loss at a moment. What will happen?

  70. Mohit Khandelwal says:


    I have a long call suppose on Infy FUT on 5 November 2016. Happy till 8 November 2016 as it rose up. But suddenly Modi at 8 in the night on 8 November announces demonetization and bang the next day market opens negative such that the the span and exposure both got erased in the pre-open session. The broker had no time to call me. So now what will happen? The broker can’t square off my call as he didn’t have the time to do so or the call will automatically square off when my initial margin is over and what if it doesn’t get squared off. There is more money in my trading account. Will it automatically take my money into the call and continue the FUT as it is.

  71. Vijay says:


    For over night Future positions, since it is M2M, Will there be any daily charges applicable – like brokereage, STT and other charges?
    Since you are daily crediting/debiting P&L, i want to know about charge structure for over night future positions.

  72. Dutta says:

    I have one request or suggestion that kindly provide margin calculator within the kite app or develop a app for margin calculator. It will be very helpful and convenient than website. Please please think on that sir. Thanks

  73. Dutta says:

    Kindly clarify and clear my doubts sir on following.

    1. On 1 lot of Call writing and put writing, is there no margin benefit and market to market adjustment?

    2. How to get margin benefit on trading on index? Kindly give rough idea. Actually want to do some strategy trades.


  74. Boopathi says:

    In M2M method what about service Tax and SIT charges ,is they will reduce everyday basis or when we are selling our stack.

  75. Dutta says:

    Sir, when option in commodity likely to get start?

  76. Dutta says:

    I am thinking of option selling strategy but due to confusion of margin concept i am afraiding.

    Suppose i write one lot of put today and one lot of call also. Now put is in 1000 profit and call is 500 in loss or vice versa. So what would be effect on my position?

    difference of 500 to 1000 rs profit/loss daily between calls and puts everyday due to nifty gap of opening and i am booking profit as and when it comes. This is my just simple strategy wanna to apply.

    So until and unless one side of option writing premium not becomes 0 and other side premium is not jump to high premium m i need to think or square off my position?

    Please advice. Thanks

    • Karthik Rangappa says:

      Your P&L will be difference between how much you are making and how much you are losing. Yes, for you to enjoy full profits, at least one of the option should expire worthless.

      • Dutta says:

        Thanksir. And also if i m not wrong along wirh that other side of option also should not be get into higher premium to avoid margin concern?

        How to check real time margin requirement or sufficient margin available on my position taken ? So that i can know further fund required or not to infuse in account?

        • Karthik Rangappa says:

          The best way to check the real time margin is by placing a limit order. Anyway, the margin would be (approximately) the one that you see in the brokerage calculator – https://zerodha.com/margin-calculator/SPAN/

          • Dutta says:

            I mean to say margin real times means after taking position then how to check?

            Second suppose one side of profit coming 1000 and other side is 2000 lose at m2m. Will that 1000 profit be considered for 2000 lose on m2m margin requirement as position taken is not hedged?

            Thanks for my regular and silly questions reply.

          • Karthik Rangappa says:

            1. margin real time can be checked on our platforms by viewing margin used column.
            2. If the profit is booked then it will be considered for loss, if profit is unrealized it will be not considered, but loss is considered for both realized and unrealized.

  77. Dutta says:

    Thanks for reply and cleared my doubt. But same thing asked to customer care they said suppose 2000 in profit-1000 loss=1000. So 1000 will be deducted from initial margin.

    Please introduce margin calculator app as soon as possible. It will help us lot. Banknifty weekly option dates are not available in your margin calculator. Please include that.


  78. Panda says:

    Thank you sir for such an awesome interpretation….

    When someone buy 5-6 lot of shares,
    1.Does this volume added in spot eqity market as it is a derivative of that market…
    2. Does this move reflect is spot market in demand and supply or even in technical analyis.

    3. In a hypothetical situation like this,

    I have Rs. 105 in my account, i buy a lot of 10 shares… 100 rs each at a margir of 10%. Share price 1000 and 10% is 100. Span is 5% suppose
    And for some unexpected events price suddenly fall by 20%
    Which is loss of 200 rs. Share price at 800%.
    Span is 5%=rs 40

    So sir what would happen my account. Is -95 rs..
    What would broker or sebi do in this case? if it is a huge amount of money in crores?

  79. ARUN says:

    Hi karthik,
    I placed a sell order but my order was rejected and message was——
    rms:rule: check circuit limit including square off order exceeds for entity account-****** across exchange across segment across product.
    Whats d meaning of above?

  80. Dutta says:

    Sir i have one kind request please add sgx nifty indices and margin calculator. Sgx nifty is quite needed indices and please check the reviews of kite app in play store.

    • Karthik Rangappa says:

      SGX is not really traded in India. Its traded on the Singapore stock exchange, so why would you need margins for that? You may need the live prices of SGX, but then to display that information on our platform, we will have to comply with the data vending rule of SGX.

      • Dutta says:

        No no sir, i dont want margin calculator for sgx. Its a request only to make it app based instead of visiting website. Sgx nifty indices is very important for indian market trends. Just to watch and track the indices purpose.

        Please think over it please. Margin calculator is waiting for many of your clients not me only.

        • Karthik Rangappa says:

          Right, but as I mentioned earlier we won’t be able to display this information keeping the data vending regulation in perspective.

  81. Santosh says:

    Hi Karthik,
    Thanks for Zerodha varsity which gives very basic knowledge.. I have one suggestion that if possible please bring Margin Calculator into action in Kite app instead of swapping all the time ..
    Thank you

  82. Santosh says:

    Karthik ,
    You have statement that ‘ Sellers gain is the buyer’s loss’ but in a situation like if buy from from the seller ( who had long position even ) and further I will sell contract after some gains to the person who buys from me that means all trades are made unidirectional then where the loss comes into picture ?

    • Karthik Rangappa says:

      Logic is simple – if you are making a profit, someone has to pay for it. So If I have bought something from you from 100 and sell it for 125, then I make 25, you lose 25.


    Dear Sir,

    Margin -M2M chapter says that daily margin = Span Mrgin +Exposure.

    1. How the % is decided. ?( i feel it is decided by NSE). I want to know from where the information of % can be extarcted.
    2.As the underlying derives its price from Market, and changing daily. I want to know from where daily opening and closing price can be obtained.
    3. I understood for different stock different % of margins are charged based on underlying stock price( Contract Value) and also it vary for different brokers. Is it true . If so I would like to gather this information. Where I will be able to get Margin files.
    4. Since daily M TO M is transferred , that much amount to be taken back again from the buyers or sellers account plus short fall in initial margin. Please let me know when the price of underlying is going down naturally contract value is going down and hence margin value becomes less. Is it correct ? Whether daily margin is paid back and again it is debited to buyers or sellers account?

    I am very much confused as I have purchased 1 future and daily M TO M is matched with my bank account but margin debit/credit fanda is not being tallied. Let me know the solution for the same. I have completely gone thru chapter but still confused.

    Also I am very much required daily price change information and also % showed for Contract value. Which website I have to refer for the same.

    I will be thankful to get this information.

    Thanks & Regards.
    Shantaram Patil
    Mob 9987889301


    Dear Sir,


    I will visit the web sight and come back to u for any doubt.

    Shantaram : 9987889301

  85. ravinder malhotra says:

    Suppose I do not close of my position in a Nifty Futures contract on the expiry day. In that case how the account is settled. Do I still have to pay the brokerage and other statutory charges. Urgent advise please as I have huge position in Futures segment expiring on 26th Oct 2017.
    Ravinder Malhotra

    • Karthik Rangappa says:

      Brokerage will be charged and so will all the applicable charges. The settlement is based on the closing price.

  86. Ketan says:

    Recently due to Bank recapitalization, many Banks opened 20% above previous days closing. In case someone had shorted PNB, margin would not have been sufficient. Even if square-off happened on opening, there would be huge negative amount in traders balance.
    1. How is this loss recovered?
    2. Would zerodha square-off any other trades to recover this amount?

    • Karthik Rangappa says:

      1) These are bad debits and the inherent risk of the business
      2) No – however, we will square off the position if the margins are not sufficient.

  87. Ketan says:

    Thanks for the clarification.

    • Karthik Rangappa says:


      • Ketan says:

        Hi Karthik,
        It has always been my concern that liability is unlimited when you short futures. At an individual level risk mitigation is very tough to achieve.
        Do brokerages provide products limiting risk to margin paid ? It’s just an inquisitive query from my end.

        • Karthik Rangappa says:

          There are products like Bracket order and cover order to help you protect yourself from a downside. Btw, you have the same risk when you buy futures as well.

          • Ketan says:

            Hi Karthik,
            I am a swing trader and hence only do futures. Major worry is what happens overnight (something like north korea). Not sure if having stop loss would be of any help in such situations (as margin would anyways be hit).
            From what I understand Bracket Order and Cover Order are for Intra day traders.

          • Karthik Rangappa says:

            Yes, BO/CO are intraday products….and yes, this is the problem with overnight positions – you carry overnight news risk.

  88. Kanhaiya Shaha says:

    Hi Karthik,

    It would be great for me to clear my queries based on below scenario for better understanding of Margin & MTM.
    Day – 1
    (1) Morning @ 9 am: Deposited Cash 1,00,000/- in trading A/c.
    (2) Noon @ 3.20 pm: Bull-Call-Spread Strategy applied for the same expiry as below for XYZ Co.Ltd. (1 Lot = 3000 Shares).
    – 1 Lot Call Bought for Strike 245 i.e 3000 Shares @ 5 Rs. Premium = 15,000/- &
    – 1 Lot Call Sold for Strike 250 i.e 3000 Shares @ 3.33 Rs. Premium = 10,000/-
    (3) Noon @ 3.30 pm: Closing Prices remained the same i.e Rs.5 & Rs.3.33 for the respective Strikes (So, there is no question of
    unrealized gain/loss on both these positions @ end of the day)
    4) End of Day-1: SPAN Margin used = 50,000/- / Exposure Margin Used = 25,000/- / Net Debit of Option positions = 5,000/-
    Closing Margin A/c = 20,000/- i.e [ Opening Cash 1,00,000 (-) SPAN Margin 50,000 (-) Exposure Margin 25,000 (-) Net Debit 5,000 ]
    5) Evening of Day-1: There is favorable news related to XYZ Co.Ltd.

    Day – 2
    1) Morning @ 8 am: New Required Margins SPAN= 2,00,000/- (4x than previous day) & Exposure = 50,000/- (2x than previous day)
    2) Morning @ 8.30 am: Deposited Cash 1,60,000/-. Now, Opening Margin A/c Balance (before market opening) = 5,000/-
    i.e [ Previous Day closing Margin 20,000 (+) Cash Deposit 1,60,000 (+) SPAN Difference 1,50,000 (+) Exposure Difference 25,000 ]
    3) Morning 9.15 am: Gap-up Opening for XYZ Co.Ltd. @ 325/-
    – Prevailing Market Price for Strike 245 Call = 80/- which equals to theoretical Price
    – Prevailing Market Price for Strike 250 Call = 75/- which equals to theoretical Price

    As mentioned; my new Margin A/c balance is Rs.5,000/- just before opening the session @ 9 a.m. So; as soon as market opens;

    Q1: What should be my Margin A/c Balance after considering prevailing market prices mentioned above?
    Q2: Should I get the benefit of Unrealized gain on Open Long Position for 245 Strike against Unrealized loss on 250 Strike?
    Q3: Is there risk of Squaring-off the Short leg still persists unless I close the Long leg?If If Yes then Why?
    Q4: If I need to Exit from the above strategy; Should I prefer the Short Leg First before Long?

    Also, please express your views (if any) in addition to above towards the risk perspective in this scenario.

    • Karthik Rangappa says:

      Kanhaiya, I think you made a mistake –

      1) Premium paid for long option = 3000 * 5 = 15000
      2) Margin blocked for short call = 75,000
      Total funds utilized towards day’s positions = 90,000
      Clear fund carried forward = 10,000/-

      Next day you add in 1.6L, which covers the SAPN requirement, so no issues.

      Anyway, coming to your questions –
      1) Guess your margin calculation needs to be corrected
      2) No – no benefit of unrealized options P&L
      3) I’m unable to get this context, can you elaborate?
      4) Yes, that would be better.

  89. Kanhaiya Shaha says:

    Hi Karthik, Thanks for the explanation…

    – Recently I shifted to Zerodha from other broker where I used to get credit for selling an option. (That’s why I have accounted it’s premium of 10k to margin A/c which leads to Margin A/c Balance of 20k). – (There is methodological difference at Zerodha compared to my previous broker)
    – What I understood is that; I should always focus on fulfilling SPAN & Exposure margin (+) some more funds over & above it (say 10% to 20%) at any point of time; which I believe; is the key factor for carrying the overnight derivative positions. Isn’t it?
    – It would be best if you could share any material/spreadsheets showing relation of Margin & MTM (P&L) in case of hedged/paied positions (with examples) at least for below strategies. (I’ve gone through most of the Z-connect Q&A but hard luck to get it)
    – Bull Call (Debit) Spread
    – Bear Call (Credit) Spread
    – Covered Call [ Buy Future (instead of Stock) + Sell Call ]

    You must click that the above scenario is completely based on the recent moves in PSU Banks & hence I wanted to understand Zerodha policies related to Margin & P&L in context of Risk Management.


    • Karthik Rangappa says:

      Kanhaiya, when you sell options you do get the credit. I mistook it for credit for the profits on a long option. Yes, whichever way you look at it – as long as you have funds good enough to maintain Span+Exposure – you can carry the position without any worry. Don’t have any material as such, will try and build something soon. Thanks.

  90. arun says:

    Hello karthik,
    These question confusing me many times can u help me by answer these questions.
    1.Equity Shares:
    i. If i Buy shares(CNC)–>when they reach my Demat acount?
    ii. If i Sell shares(MIS)–>when i get the money?(i mean when i am able to use that money for other trade)
    iii. If i Sell shares(CNC)–>when i get the money?(i mean when i am able to use that money for other trade)

    2.Equity Futures :
    iv. If i Buy Future contract(CNC)–>when they reach my Demat acount?
    v. If i Sell Future contract(MIS)–>when i get the money?(i mean when i am able to use that money for other trade)
    vi. If i Sell Future contract(CNC)–>when i get the money?(i mean when i am able to use that money for other trade)

    Give the answers as per zerodha perspective.
    plz share any source link available.

    where can i check the my holdings which still in the process to reach the my Demat account in zerodha kite web?
    Thank u.

    • Karthik Rangappa says:

      Answering in the same sequence,

      Equity Shares:

      1) On T+2 basis. So if you buy on Monday, you can expect it on Wednesday
      2) Real-time
      3) You will be given margins to the extent of the sell value, which you can use towards other transactions

      Equity Futures:
      1) There is no concept of delivery in Futures. Also, CNC is not a valid product code for Futures. If you intend to carry the position forward for multiple days, use NRML. For intraday use MIS.
      2) Realtime
      3) Realtime

  91. arun says:

    Thank U Karthik, for u r attention to answering any question as well as same questions for so many times irrespective of simple/hard.
    Thank U Zerodha Team.

  92. Ranjish says:

    Excellent way of explaining complicated things in a simple manner. Is it possible to get the entire booklet by post.

  93. trader says:

    is there any separate charge for using cover orders or bracket orders in MIS with full leverage in equity/F&O that zerodha charges?

  94. jyotshna says:

    If margin call happens, user receives sms,
    1.) After how much time positions will be squared off ?
    2.) or After how much % decrements positions will be squared off ?
    3.) Zerodha is giving time to add margin, if yes how much ?
    4.) After margin short fall positions will be squared off immediately, and if again position comes in favor of client what happens.

    • jyotshna says:

      + if I have 3 lot and margin short fall happens then how many lot will be squared off by zerodha ?
      It is 1 or 2 or 3. In case of multiple lot what happens ?

    • Karthik Rangappa says:

      1st margin call at 100%, thereafter for every 20% user gets alert. During the day we cut position above 140%, to carry position forward ideally client should have 100% of required capital but this is at the discretion of RMS to carry forward position. No specific time is given, this call is taken based on volatility it is client responsibility to monitor his positions.

      • jyotshna says:

        What happens when
        user receives margin short fall sms, after that price moves in users direction, so no short fall at that time. After sometime again short fall happens will user get another sms or alert to add money ?

        • Karthik Rangappa says:

          Yes, the moment your margins go below the stipulated SPAN level the positions will be cut (in the absence of additional funds).

  95. santosh says:

    I am going through module by module, so writing here.
    On 18th dec 2017 I was unable to place order, got server error message and I was in profit almost 10k, I was ready to book but unable to book, and after sometime news changed and I was in 2000 loss.
    1.) How zerodha will respond to it, who will pay ( As of now I paid ), by brokers server problem client made loss.
    2.) Can’t zerodha have 2 or 3 servers and that too in different cities. A loadbalancer will take care of these type of problem.
    3.) Asking Zerodha only, where to complain about this loss ( SEBI, NSE or any other link ).

    • Karthik Rangappa says:

      Santosh, I’d suggest you write to [email protected] for this.

    • RAJ says:

      I don’t think so they will respond you, my friend.Now a days. I am seeing the same type of complaints. If zerodha can’t rectify such issues it may lead to utter downfall.Remember one thing People have trusted you. Don’t make people lose hope on you, it will never return backs
      Hoping So

  96. Rajesh says:

    Your way of teaching is good
    a doubt.In last part. he is less by approx 2000 to span amount. Is it enough to add 2000 or he has to add 2000+ exposure amount compulsory? if 2000 is added, will he can stay in trade?

  97. Sumil says:

    Hi Karthik,

    What is the diff between MIS and NRML while buying/ selling a futures contract?

    • Karthik Rangappa says:

      MIS is an intraday product, comes with additional leverage. NRML is when you want to carry forward the futures position overnight.

  98. Sushant says:

    Lets say for Nifty Futures …
    What happens when there is a Gap up opening ? say there is gap opening of 50 pts.

    • Karthik Rangappa says:

      Well, the gap up opening just indicates that the sentiment is bullish. For the gap down, the sentiment is otherwise i.e berish. Gap up and down opening does not indicate that the market will continue in the same direction for the rest of the day.

      • Sushant says:

        Sorry. I was not clear in question. I was asking for a overnight position, what happens when there is a gap up opening?
        Let’s say market opens 50 pt up next day. Will I be paid for those 50 pts ?

        • Karthik Rangappa says:

          If you keep the position open, then the mark to market will depend on the closing price and not really on gaps.

  99. Gautam says:

    I checked margin requirement in margin calculator but unable to understand how calculator calculating exactly. Nifty future closed at 10426. So i tried with like that nifty march future sell one lot and buy 2 lots of call of 10400 or 10300 but not showing any 0414 benefit. When i selected 10500 strike price it showing margin benefit.

    1. I want to know how and which strike price to be selected to get the margin benefit?

    2. Calculator is taking previous day closing price or real time?

    3. For eg. as Calculator is showing 62000/- margin requirement for one lot nifty sell/buy and i am getting margin benefit upon selecting strike price. So if i have 70000 in my account will i able to buy/sell future first then 2 lots of option buy? Or am i need more than 70000 amount in my account?

    Kindly clear my doubt.


    • Karthik Rangappa says:

      1) Technically you can select any strike which offsets your position in futures and you will get a margin benefit
      2) Previous close
      3) This depends on the premium of the option. For example, buy 10400 Fut and buy 10400 PE you get a margin benefit of 17K as of the close of 13th March.

  100. Prakhar says:

    How is closing price of futures for a day determined. Is it the last traded price or anything else.

  101. Harshal says:

    Sir Zerodha equity bracket order and mis (margin can be use in preopening session)

    1. Sir margin preopening session me use kar sakate hai kya

  102. chidambaram says:

    Hi sir,
    you have mentioned in the content that both SPAN and Exposure margin are specified by the exchange. but in Key take away, you have mentioned that “SPAN Margin is the margin collected as per the exchanges instruction and the Exposure Margin is collected as per the broker’s requirement”.
    Which one is correct w.r.t exposure margin?Is it decided by broker or the exchange?

    • chidambaram says:

      And also margin calculator i do see a difference in margin requirement between F&O and Equity futures for any stock (eg.TVS motors).Why so?

    • Karthik Rangappa says:

      As in even the exchanges gives guidelines on exposure margins which the brokers incorporate.

  103. Adishwar says:

    Just to clear my concept one will start making loss on futures as soon as the cash balance is lower than the initial margin. But one can carry forward the loss till cash balance hits span margin right?

    • Karthik Rangappa says:

      You will start making a loss as soon as the futures price goes below the buying price. If you have short, then you will make a loss as soon as the price of the futures moves higher than the short price.

      • Adishwar says:

        Okay. If we have long position We will start making loss if price goes below the buying price. And we will receive margin call when the cash balance reaches span margin. And if we have short position We will start making loss as soon as price goes above the buying price. Here also when our cash balance will reach to span margin we will get margin call. If we are unable to infuse margin when we get margin call the brokerage will automatically square off the position. So if we are unable to deposit extra margin our loss can occur only to the extent of span margin. For example – you have mention that our SPAN margin here is near 17625 while placing the trade. So our loss can only be till 17625 if we choose not infuse any extra margin RIGHT?

        • Adishwar, theoretically, you are correct. However, this might not be the case in a gap up/down opening in the contract. Also, when the stock is moving very quickly. While trading futures, you can even lose more than your blocked margins(SPAN+ Exposure)

  104. Daljeet Singh Chouhan says:

    Hello Sirji,

    Suppose I buy/sell XYZ future as NRML on June 1st, can I place stop loss at the time of placing the order or should I place the stop loss once the order is executed??

  105. Harshad Patel says:

    Hi Karthik,

    My query related to F&O – Futures Brokerage calculation and I know I can easy to calculate using https://zerodha.com/brokerage-calculator. But my query is different.

    Can you please tell me how to Futures Brokerage calculate?

    1) Daily M2M P&L
    2) Contract Starting to Square off
    3) Other.

    • Karthik Rangappa says:

      M2M is simply the difference between the price at which you bought or sold and the closing price multiplied by closing prices. I have explained this in the chapters, Harshad.

  106. Aditya Jaiswal says:

    Sir please explain the last sentence of the Chapter as it says –
    ” in fact some brokers will even cut the position real time as and when the cash balance drops below the SPAN requirement. ”

    What does cutting the position real time means ?

  107. Akshay says:

    Hi Karthik

    All my doubts have been cleared, very well elucidated article. Kudos to you !!!
    I heard about Premium and assignment margins on options. Could you throw some light on these as well?
    I trade options but don’t think I ever paid these.

  108. Mayuresh says:

    Sir can you plz explain the scenario in which a trader misses a margin call.how does the exchange takes care care of the position and are there any ramifications on broker and trader?

  109. Srini says:

    Just simple awesome. Simple explanation with simple examples and goes like a story. Exactly like how it should be!

  110. Shaurya Dhankar says:

    How do you get the value 29334 for initial margin in method of cash release?


    Dear Sir,
    As you said futures trading is Zero amount game ,why market regulators allowing this ? No wealth creation at all just transfer money from one packet to another packet. looks like gambling and betting. what is the actual idea behind FnO segment.?Please throw some light on my doubt Sir?

    • Karthik Rangappa says:

      The F&O instruments can be used for many different activities, speculating is one of it. The real purpose is to help investors protect their portfolio losses by hedging their portfolio.

  112. ashwin says:

    DOES A FUTURE CONTRACT GETS EXECUTED without margin money and what is the time frame for making payments if m2m loses arise and if there is a position in futures .If payments is made still the broker makes
    auto sqaure off and results to loss who is responsible?
    1)without margin money does a future contract gets excuted?
    2)IF the client has got short position and the prices escalate ?Does the broker have the right to auto square off the postion taken that day, without consultation of the client and if the client has made payments can he auto square off and what is the time ?
    3)if the broker auto sqaures of before the market hours and if the prices fall down causing loss to the client is the broker responsible ?

    • Karthik Rangappa says:

      1) If you do not have sufficient funds to continue carrying the position, then the broker is obligated to cut your position.
      2) Auto Square off at the end of the day is applicable only if you have opted for MIS product type. If you have opted for NRML, and you have sufficient funds, then you can carry the position forward. To know how much funds as margins you need, check the margin calculator here – https://zerodha.com/margin-calculator/SPAN/
      3) No, he is not. The broker would have squared off either because of lack of margin funds or because you have forgotten to square off an MIS position. Remember, the onus is on you to ensure you understand the broker’s margins policy.

  113. Siddhant Shah says:

    Quick Question on MTM. Say I buy Infy @ Rs 1000 at 3.25 PM. It closes at Rs 1001. Rs 1 profit/share is credited to my account. Next day Infy opens at Rs 1025. I tank it of at 9.16 AM @ Rs 1026. Will Rs 25 (1026-1001) be pocketed by me?

  114. prakhar says:

    how is closing price of futures for mark to market determined.

    • prakhar says:

      ALso i see the margun rquirements for selling options change daily but options are not marked to market.So how would it affect the seller of options and how is it different from mark to market of futures

      • Karthik Rangappa says:

        Yes, the margins vary based on the volatility of the stock. Higher the expected volatility, higher is the margin.

    • Karthik Rangappa says:

      The closing price of both futures and equity is determined by the weighted average price for the last 30 mins of the market.

  115. kiran SP says:

    Hello sir,

    i have a small doubt what about the “gap up open” or “gap down open” in case of mark to market system.
    For example, if suppose I have purchased a Titan at 912 today at 10 am and it closed at 918 at 3.30 and next day it opened gap down at 910..then what happens since this system taken only open and close and next day open price, where does this gap up go??

  116. Srinath jayanna says:

    Varsity excellent place for beginners to learn.Good job sir.
    1.Can we do averaging in futures as we do in spot market.
    2.If I’m bullish I’ll buy and sell,if I’m bearish can I sell and buy.
    3.Is both span and exposure blocked till we square of or till expiry.

    • Karthik Rangappa says:

      Thanks, Srinath!

      1) Yes, you can
      2) Yes, thats correct
      3) Till you square off.

      • Srinathjayanna says:

        Sir as you said if the price comes down below span we need to maintain additional cash in account or it will get squared off.But now as per new SEBI rules we should maintain both span and exposure right.

  117. Hari says:

    Hello Sir,

    First of all I would like to thank you for publishing this such a good presentation along with lots of illustration with regards to the future trading concepts and it was really helpful to understand more.

    I have one qq as I am new to future trading:

    Suppose if I need to buy one future share with 1 lot size then I need to pay the margin amount first to Zerodha (like 12 % of CV – 12 % consists of both SPAN (7%) and EXPOSURE (5%) ) then only I should be able to buy and then do the trading in fuitrw contract.

    Can you please let me know whether my understanding is correct or not?

  118. Rohit Sharma says:

    Hi sir,
    I want to know only one thing ,if I trade with zeodha and short one lot of banknifty intraday then margin requirement is 23-35 k. After 4% ASM , will it be 4% on 23-25 k or on total contract value?

    • Rohit, it will 4% of the contract value. However, if you are shorting options, the ASM margin increase would depend on the strike of the contract you are trading. ITM and ATM will have higher requirements compared to OTM options. The intention of the increased margins is to cover a 10% market movement.
      Read this TradingQ&A thread for more

  119. Srinathjayanna says:

    Sir,I’m willing to take markets for full-time profession I m using varsity to learn and if you know any good books for trading and investing can you suggest.

    • Karthik Rangappa says:

      Not to discourage you, but trading full time is a hard profession, I’d suggest you rethink this. Varsity is good enough to help you get started though.

      • Srinathjayanna says:

        Thanks for ur suggestion sir.If full time trading is an hard profession means then for whom all these thing’s are futures,options is it only for part time traders and institutional investors.Here for one of the queries you have answered that markets are not gambling it’s a skill work and there are so many traders who are living more than a decent life by doing full time trading then which is true here.

        • Karthik Rangappa says:

          Agreed, I’m not saying its not possible, but this is a very hard profession, especially because you have to be consistently profitable 🙂

  120. Harsh says:

    Suppose If I buy a future contract of Divis lab today at let’s say Rs. 1000 and let’s assume that the margin required is Rs. 70000 (this is the only amount in my account). Now if due to some bad news lets say USFDA notice, the stock falls to 750 for the same day, Then what’s my loss??

    1. 70,000(Which is the only amount in my account)
    2. 250*600 lot size = 1,50,000 which means the account balance will be( -75,000)

    If ur answer is 2nd option then how are u going to get -80,000 from me?
    Can positions be squared off without sending a margin call?

    • Karthik Rangappa says:

      If ur answer is 2nd option then how are u going to get -80,000 from me? – For this reason, there is margins system in place. The broker will close the position once your losses goes below the stipulated SPAN margin requirement.

  121. omi says:

    If i am having more then one say 5 or 6 short option or futures position and i am getting margin call to add fund or position could be squared off , so only one or say two position will be squared off by rms or all the open positions would be sqaured off.

    • Karthik Rangappa says:

      Not all, only till it makes good for the shortfall.

      • omi says:

        also i dont think rms will place market order for sqauring off existing position in non liquid option strikes or will they just place market order without considering bid ask price differences in option strikes.

  122. yesh says:

    can you tell on which level of margin utilisation the system squaress off the position is it 110 percent utlisation or 120 percent utilisation or more then that for short options as they dont have m2m .

  123. omi says:


  124. prashant says:

    What is the meaning of negative (-ve) margin value.Please reply thanks in advance.

    • Karthik Rangappa says:

      I guess you are talking about the margin reported in the dashboard. Negative indicates that the cash has been utilized for margins. Think of it as cash outflow.

  125. vaibhav panchal says:

    Confuse about (SPAN/EXPOSURE) MARGIN.

    Example… I Want to short shell NIFTY 10700 CE (28 FEB 2019). Zerodha brokerage calculator shows margin like this….SPAN 71732, EXPOSURE 33904 TOTAL OF BOTH IS 105335.

    So My question is when will my my position will be auto square off.

    Whether my SPAN MARGIN IS zero or Exposure margin is Zero.

    In simple worlds if i have no additional money in my trading account, i had only Rs 105335 which i have utilized. so if my loss is off 71732 then, will my position will be auto square off by Zerodha,

    • Karthik Rangappa says:

      Yes, Vaibhav. If you don’t have sufficient funds to manage the position, then the position will be squared off.

  126. Natesh says:

    Please give me clarity about (SPAN/EXPOSURE) MARGIN.

    Example: I want to buy 1 Lot of NIFTY 28-FEB-19. Zerodha margin calculator shows me like this….SPAN Rs: 58,388 , EXPOSURE Rs: 34,707. Total margin id Rs: 93,095

    So my question is when will my my position will be auto square off, whether my SPAN MARGIN IS zero or Exposure margin is Zero.??

    • Karthik Rangappa says:

      Natesh, you need to have a minimum of SPAN + Exposure margin i.e 93K to maintain the position, else you cannot hold onto the position.

  127. Yeleti Chaitanya Chowdary says:

    I found two types of futures I don’t understand, let take an example Tata motors Fut Mar price is 181.95 and lot size is 2000 (08.03.2019) then Tata motors Mar 105 CE price is 84.75 and lot size is same what is the difference between these two?

    • Karthik Rangappa says:

      They are two different instruments, Yeleti. the Tata motors Mar 105 CE is an Options instrument and Tata motors Fut Mar is a futures instrument. They behave differently in many terms.

  128. Akshay says:

    Hi Karthik,
    I would like to use an example stated above, Suppose If I buy a future contract of Divis lab today at let’s say Rs. 1000 with 600 lot size and let’s assume that the margin required is Rs. 70000 (this is the only amount in my account). Now if due to some bad news lets say USFDA notice comes after the market is closed and on next day the the stock opens with a gap down opening at 750. So my loss in this case is 600*250=1,50,000 how will the broker deal with it ?

    • Karthik Rangappa says:

      You will be required to top up the margis to cover for both SPAN + exposure, failure of which the position will be cut by the broker.

  129. R K Sethi says:

    First thanks on the clear contents on future trading concept. I require some light on following:

    You have indicated Initial Margin is to be blocked in Trading A/c. Suppose I have equity shares worth Rs 10 lac and available margin is say Rs. 6 lac in equity segment. If I buy one future contract of Ashok Leyland (4000 shares @ 89/- ), would I be required to deposit Initial Margin for it separately or margin available in Equity seg will be used.
    Pl reply.

  130. Srinivasan says:

    Brilliant Writing.!!! Keep up the good work. The way you have explained the concepts is really Phenomenal.

  131. Sunny says:

    When I try to do a credit spread i. e, placing separate buy and sell orders of different strikes on kite platform, the margin requirement is much more than the max loss. Is there any way I can reduce this margin? I am also not sure if sensibull provides a spread buy/sell feature. If it does provide, is the margin requirement significantly lower if the spread order is executed on sensibull?

    • Karthik Rangappa says:

      No, margin requirements are the same. However, for a spread, the margins do get reduced but you will need the entire margin before you place the order. Once the order is placed, the margins are released back.

  132. Anuragh says:

    Hello Karthik ,

    1. If I need to buy a future contract of ASHOKLEY MAY FUT and I would like to hold it for Overnight in that case I should be using the NRML margin ???
    2. if I buy a future contract of ASHOKLEY MAY FUT and I would like to square off the position the same day then I would be using the MIS Margin ???
    If the above statements are true then why should I be buying a future contract of ASHOKLEY MAY FUT and then square off the same day instead I could buy ASHOKLEY on spot price and I could square it off the same day.???
    3. If you say that buying a contract in Future market will give you extra margin and you have options to buy more lots then BO and CO also does the same gives your extra margin ???
    What is the difference . Please Clarify all the doubts
    Thank you in advance

  133. vishant says:

    lets exampal i bought sbi 1 lot futur @230 total margin reqried 166000(span – 100260 expouser margin 66223) if my M2M goes belove 100260(this is spam margin amout) will broker close my postion ? means margin call

  134. Devendra Dholakia says:

    Please inform if the span margins and exposure margins collected by Zerodha against equity derivatives are as per NSE requirement or if the margins collected are higher than required by the exchange. In other words does Zerodha charge or require margins against equity derivative futures which are in excess of the margins required by the Exchange??

  135. Kcrest says:

    Hi Karthik,

    Absolutely wonderful content you have been publishing consistently.
    You are the real teacher (free of cost) unlike others who don’t teach real stuff after taking money.

    Pls clarify my small doubt –
    If i buy stock futures (1 lot of XYZ) today (24 july 12:25PM) using NRML mode @250 price. The closing price for 24july was @255.
    suppose i carry forward the position overnight. Is there any way i can see where i have carried forward my position on future contract i bought or is it just available in P&L where i can see the price difference between my buying price and closing price of the day.
    I want to know specifically where can i see my position of my futures if i carry overnight using NRML.

    Thanks for stunning content.

    • Karthik Rangappa says:

      Thanks for the kind words 🙂

      Yes, you can see your position in Kite, under the positions tab. This shows you the contract that you are carrying plus the live P&L.

  136. Abdul Khader says:

    Hi karthik, thank you for this module…

    My doubt is – what happens when we hold the futures till beyond date of expiry? Since the idea of futures is that you enter into an agreement to buy the lot no. of shares on the date of expiry of futures, does it mean that when the expiry date arrives, all these shares (equal in quantity to lot sizexno.of lots purchased) will now land up in our demat? … And which we will now have to sell in the spot market?

    Also i have got a feedback to givr – i think the table with an example of dayy to day changes in m2m and margin in the varsity APP has erroneous values, right from the cash balance on the end of first day… – i came to the varsity webage for clarification…

    Thank you!

    • Karthik Rangappa says:

      Yes, with the new physical delivery system in place, if you have futures, you will have to take delivery of these shares.

      Thanks for pointing that out about the app. Let me get the values checked.

  137. Abdul Khader says:

    Thank you for the prompt response sir.

    But i got a new doubt now.
    1) Because the broker would’ve blocked only the margin amount from us, at the expiry of contract, what will be done? Will the client be asked to deposit the complete amount at this point, for taking the physical delivery of shares?

    2) also one more – this is a statement from one of the cards in the app – ‘in simple words, when i buy a futures contract, it has to move in my favor before the expiry day, else there is no point.’ In a sense, this no longer holds right? Especially because we have to take physical delivery of the share on expiry day – and then even a favorable movement at a later date will be of benefit. ( of course i can understand that the disadvantage would probably be a lower return-for-investment, now that ours would not be a leveraged position, because we may have to park the whole amount to keep the shares in our demat, in the event if expiry of futures. ) – am I missing something?

    Thank you

  138. Abudhar al Hassan says:

    Hi Kartik,
    I have posted the following query on a relevant page but I am posting it here as well because I believe you would be able to give me a better and quicker response. Please read:
    I have the following open positions:
    1. IDEA AUG CE with strike price 8. Idea spot is currently at 5.75.
    2. I am long BANKNIFTY AUG FUT which I bought at around 28463 and I also purchased a BANKNIFTY AUG 28400 PE as a protective put to reduce the downside risk.
    Today, I suddenly get this mail with subject: “Positions in contracts with compulsory physical delivery”.
    Now, my question is,
    A) Does this physical delivery compulsion apply to BANKNIFTY? I think not because index futures aren’t physically deliverable as far as I know. So is it safe to assume that the BANKNIFTY FUT AND PE would be cash settled upon expiry?
    B) Where do I stand with regards to IDEA CE? It is an OTM CE as of now. Will it be squared off automatically on the next trading session? Because I don’t think I have the necessary margin requirement. Also the F&O margin calculator of ZERODHA doesn’t show the SPAN and Exposure margins required for long options. It only displays margin requirements for short options.
    Kindly advise as to what I should do to avoid catastrophic damages. I have no intention of purchasing the stock and the purchase of the IDEA 8 CE was purely to benefit from premium rise if any prior to expiry. Awaiting reply.
    Also Karthik, though I received an intimation from ZERODHA regarding the physical delivery compulsion, it arrived on 23rd AUG which is 6 days prior to AUG expiry. You would have to reduce 2 days from the 6 as they are weekends. So that leaves only 4 days which is hardly enough for people like me to take informed decisions. Also such intimations should be given via sms as well. Would appreciate if you could pass my concern to your support/RMS team. And also awaiting your advise on the above issue. Thanks.

    Abudhar al Hassan.

    • Karthik Rangappa says:

      The email if for your Idea position and not for Bank Nifty position. Long positions do not require margins, you pay margins. You will have to square off the position if you have no intention to hold the position, else you will have to bring in the required margins.

      I will pass your feedback.

  139. Abudhar al Hassan says:

    Thanks Karthik, I had a word with Zerodha customer care and they sort of clarified the matter.

    But, I still have another doubt…and would appreciate if you could help me understand this.
    I went long with one lot of BANKNIFTY FUT @ 28463 with 29th AUG EXPIRY. And as protection against downside risk I simultaneously bought a BANKNIFTY 28400 PE @ ~400/- premium, also with same expiry. Now what would happen after expiry?
    1. Will the future be sold at 28400 because of the 28400 PE and my loss would be limited to the premium paid + diff between fut buying price and PE strike price (i.e. 400+(28463-28400))=463X20?
    2. Will there be any STT trap in this case? If yes, then please do explain how much extra will I lose.
    3. Will exiting both the PE and FUT before expiry do any good? Right now, the combined P/L is around -10k. Will allowing both the position to expire reduce the losses?

    Thanks for your help.
    ~Abudhar al Hassan.

  140. Abudhar al Hassan says:

    Assuming that the BANKNIFTY spot remains below 28400 at expiry.

  141. Abudhar al Hassan says:

    Hi Karthik,
    1. So you mean to say that protective puts and covered calls don’t work with BANKNIFTY futures? I was under the impression that in case I buy the underlying and I purchase a protective PUT at the same strike price it would allow me to sell the underlying upon expiry no matter how far down the market goes…
    2. Likewise, for covered calls, if I bought the underlying at say 11000 and sell a 11500 strike price CE and if the market crosses 11500 upon expiry then I would have to sell the underlying at 11500 right?
    3. Or it doesn’t work with BANKNIFTY futures like that but works with stocks?
    4. Or have I got this completely wrong and covered calls and protective puts are something entirely different?

    5. Also the above post on STT trap, it says it would be effective from Sep1 2019. So I guess it won’t apply to contracts expiring on 29th Aug 2019? Or will it?

    ~Abudhar al Hassan.

    • Karthik Rangappa says:

      1) Technically yes, as long as you treat each leg separately.
      2) Yes
      3) As I said, it does, but treat each leg separately
      4) Nope, you’ve not 🙂
      5) Yes, starting 1st Sept.

  142. Pranit Roy says:

    Hi Karthik,
    Who sets margin in NFO?
    Is it the NSE or the broker?

  143. RAJDEEP says:

    Hi Karthik….I liked your content/lessons very much.
    I have a Questn “What happens on the Day of Expiry? Will my trade gets square off Automatically or do I have to do it myself?”

  144. Gowtham says:

    If I bought banknifty futures and the market fell more than 25 percent rapidly . Will I be liable to pay any money extra if it is not squared off automatically.

    • Karthik Rangappa says:

      At any given point you need to have enough margins to carry forward the position…i.e. if you wish to do so. Else, you can always square off the position.

  145. Deepak says:

    sometimes future price of the stock is lesser than current stock price.what is the reason for the difference.

    Example IOC —110.20
    Feb FUT-108.40
    Mar FUT-108

    • Karthik Rangappa says:

      This happens due to various reasons, demand-supply dynamics being the most common and easily attributable reasons 🙂

  146. Easwar says:

    I am seeing repeatedly Contract value = Futures Price * Lot Size. Is this right? The common understanding is that Lot size is number of units per 1 standard (minimum) quantity. And Order size will be in multiples of Lot size. Hence is it not that Contract Value = Futures Price * Order Size?

    • Karthik Rangappa says:

      Contract Value = Futures price * 1 lot
      Order size = Futures price * number of lots you wish to buy

  147. srinivas says:

    You are asking me to pump money even though my contracts are in profit. You have even squared of my position. shameful thing. Why to pump in money when my contracts are in profit? Why are you sending repeated messages to me that the contracts will be squared off? Does it mean that I have to pump in money continuously as long as the contracts profit increase? I have raised tickets. One of your member said that it won’t be squared off if it is in profit. Disgusting, no response from your end in spite of raising tickets. Probably you want repeated buy and sell orders to get more money.

    • Karthik Rangappa says:

      Srinivas, it is really important for you to fully understand how this works. The margins for YES Bank is 120% for long positions and 200% for short positions. So it is natural for the team to ask you for the margins, right?

  148. srinivas says:

    I have yes bank april future contract at Rs 20, everyday I am getting messages to pump more margin money. Now the contract value is 46.90 and I get repeated messages to pump more money? I fail to understand, why to pump more money?

  149. Akash says:


    In SPAN margin, what does SPAN stands for and why is it called as SPAN (margin) ?


  150. Akash says:


    Suppose I incur a loss and my exposure margin gets used up. I further make loss, then broker will make up this loss from the SPAN margin but exchanges will not allow to do so and thus more money needs to be pumped by me. Right? My question is, when exchanges do not allow the broker to touch upon SPAN margin then why exchanges need this SPAN margin? Can’t SPAN margin be used up to make up for the loss incurred?


    • Karthik Rangappa says:

      The margins are required to ensure there are no defaults at any given cost. If the margins deplete, you need to bring in the cash to continue your position.

  151. piyush says:

    Hi Karthik,

    Loved reading the content!

    When you say margins deplete to M2M losses, you mean all of Span and Exposure or just the exposure?
    Per Support portal: Normal (NRML) is used for overnight trading of futures and options. If the client does not want any excess leverage, he can use the product type NRML, and he would not have to worry about auto square-offs.

    So, I need not to worry about the auto-square off when my total M2M losses are within the total margin blocked(span + exposure). Is that correct?

    • Karthik Rangappa says:

      M2M profits or losses are daily settled. At any given point you need to ensure adequate margin is available (SPAN+exposure), any reduction in this owing to M2M losses should be serviced and more funds should be added.

  152. Piyush Kumar says:

    Does that somewhere also says that I might need unlimited money owing to M2M losses even if I keep the (span + exposure), and that does mean that I’m in the wrong trade, but don’t you think this is not a tradable situation which should occur?
    Futures is also subject to unlimited losses just like the option writers, this was not said for in the Futures modules unlike options modules.

    • Karthik Rangappa says:

      Piyush, this depends on the price movement. If your position continues to make losses, then yes, you will need more margin money.

      It is assumed that the guy reading Futures module has not been introduced to options yet, so dint want to complicate things 🙂

  153. Ajinkya says:

    Thanks for explaining this in simple language. I tried many sources to understand these basics, but your way of explaining helped me alot. Thank you.

  154. AS Rao says:

    Don’t trust these lectures. Even if your futures is in profits, they insist on margin money. I purchased Yes bank futures at Rs 18 and deposited money. The value of total contract was 8800*18=158000. I am having 200000 in my account. Gradually the share price went up. They asked for margin money. I deposited another Rs 50,000/-. Gradually the share value reached Rs. 78/- and they again asked for margin money. As I couldn’t raise money, they squared off as I couldn’t put more money as per their margin call. Zerodha squares off even when your futures are in profit. They say it is as per NSE and NSE says they have not. Simple sense is my purchase value of contract is 158000. Why do I need to put more money if the share price increases? At any time my loss will not be more than 158000. Zerodha says it is as per NSE and NSE says not so. They give to MARGIN MONEY calls whether your contract is in loss or profit. They want money, money, money and nothing else.

    • Karthik Rangappa says:

      Margins are a function of volatility. As volatility increases, so does the margin requirement. You are thinking about your position, please think about the shorts and then think about the broker risk and also the systemic risk involved.

  155. Karthik says:

    Thank you for making it so clear. Suppose I buy 1 lot of NIFTY futures – I have pledged Liquid Bees/Liquid Mutual fund and I have extra Cash for M2M.
    1) If all my cash for M2M losses is exhausted, will I be notified or will you just sell a portion of the pledged liquid bees/liquid mutual fund?
    2) As far as pledging goes, is there any difference if I pledge Liquid Mutual fund instead of Liquid bees? Liquid mutual funds seem easier to understand and track.

  156. Karthik says:

    If I notice that cash for MTM losses has become 0, then can I just sell some stocks in my demat account? The cash accrued out of that sale, will it cover the MTM losses? (even though it will take 2 days for settlement of the stock sale)?

    • Karthik Rangappa says:

      M2M happens on a daily basis, you need funds to buffer for this, else u stand the risk of the position getting squared off.

  157. Karthik says:

    Sorry for being persistent. I am relatively new to all this.

    I understand that M2M happens on a daily basis.
    So if I notice that the cash balance is going low, Cant I just sell some stocks? wont it immediately increase my cash balance?
    Or will it take 2-3 days for the cash balance to go up.

  158. Andrew says:

    As I read module after module of this excellent content, the one thing I repeatedly wonder is “How is this free!”. This is such good writing. People are ready to pay 10s of 1000s of rupees for courses half as good as this.

    I have few questions in this module. They may be impractical, but will help clear my understanding:
    1) At Zerodha, I buy a Futures contract with margin ₹50,000 and I have an additional available cash of ₹50,000(excluding the margin used) in my trading account. Something extraordinary happens and the stock value plummets in the same day. I understand that Zerodha does not do margin calls and auto squares off the positions instead. My question is, at which point does Zerodha square off my position? Is it when the losses hit ₹50,000 or ₹1,00,000(₹50,000 from margins used + ₹50,000 from available cash)?
    2) What happens if Zerodha cannot find a buyer at that price for the auto square off? If Zerodha can find a buyer only at a price which leads to a loss of ₹2,00,000, how will Zerodha make sure that I pay the remaining money? Is legal route the only option(if I don’t pay up)? If I don’t have enough assets to pay back, even the legal route may not be useful. In such case, does Zerodha take the loss or does the person who sold the contract to me in the first place take the loss?
    3) In case of shorting the same question gets inverted. Assuming I sell the contract for ₹50,000 and towards the expiry date it turns out that the buyer cannot afford the loss and the broker is unable to find an alternate buyer. So, do I have to take the loss for the buyer’s default? If yes, though futures mitigate the default risk posed by forwards to a large extent, it does not completely eliminate it. Is that a correct statement?
    4) As the new rules stipulate that all equity Futures contracts should be physically settled at the expiry date, should we expect higher volumes(and possibly volatility) on the last Thursday of every month in the spot market?


    • Karthik Rangappa says:

      1) Above 50% of the margin required, so, in this case, a loss of up to 75K
      2) We have the right to file a legal complaint and recover. However, if this goes to expiry, there is always a counterparty
      3) Same as above
      4) Not really, but higher margins closer to e expiry for sure 🙂

      Happy reading!

  159. Abhishek says:

    Hi Sir,

    Just checked Zerodha calc is showing span margin as initial margin and span + exposure as total margin. So what should be the minimum balance should we have before entering into a futures position – initial margin or total margin?

  160. Varun Agrawal says:

    Hello Karthik,

    I have some questions.

    #1: Do all stock broker in India and internationally makes margin call?

    #2: Is it like a E-Mail or a phone call? What time do you receive it? Morning before stock market opening or in afternoon after stock market closes?

    #3: How long I have to add balance? How many hours/days?

    #4: Let’s say of a hypothetical stock market crash where cash balance falls in negative before position could be closed. Are we legally obliged to pay the negative balance?

    #5: I assume cash balance is shared among all contracts for Zerodha clients? (so if one contract falls below SPAN and one is doing well, balance will be adjusted).

    • Karthik Rangappa says:

      1) Yes, but each does in their own way – calls, email, text, Whatsapp, messenger
      2) Depends on the price, usually, it is a dynamic call
      3 Again depends on the underlying and the speed at which it is moving
      4) Yup, this happened with the recent crude oil prices
      5) Will confirm this again, but this should work 🙂

  161. Varun Agrawal says:

    Thank you for the quick reply.

    So from my understand, I should instead everyday try to ensure enough funds instead of waiting for a call since they can square off my position immediately if needed. I think the same applies to intraday orders with a margin too.

    Also if they failed to square off my position because of lack of liquidity, I owe the money to my stock broker. They can square off my other positions and keep the money to cover the losses. They can additionally sue me too.

    • Karthik Rangappa says:

      Yes, if you have a position always ensure there are funds to buffer your position. The broker is entitled to collect the money due from you, failing which a legal case can ensue.

  162. vivek says:

    Hi Karthick,
    Nice explanation though !!!

    the query goes on like this :-

    Suppose i do a long in upl may fut for 1 lot (900 quantity) as per the explaination provided on margin and m2m the buy price of a fut is the prev closing price in the zerodha app the span and exposure margins change accordingly , but in the positions the upl may fut always shows the initial buy price, can you please throw light on this please?

    • Karthik Rangappa says:

      Not sure if I get you completely. The difference between what the actual and whats shown (if any) what is not much, Vivek.

  163. Navin says:

    Hi, I have been trading into futures…both NRML as well as Futures MIS. My question is suppose I buy a futures contract by paying an Initial Margin (span + exposure) and have no cash balance. Now when prices go down, Span will change too. But since i have no cash balance, will the futures contract be automatically squared off?
    Also, what is the purpose of Exposure margin? and Lastly, if its automatically squared off, what do i lose? the loss displayed on P&L, or I’ll lose my entire Span money, or I’ll lose my Exposure margin only???

    • Karthik Rangappa says:

      You need to maintain the SPAN+exposure margin all the time, in case of margins less than that, then the position will be squared off. You will lose to the extent of loss you see in positions tab.

  164. Navin says:

    So it means if I buy a futures but do not have any additional fund left. In such a case even a little fall in prices would trigger squaring off of the contract?

  165. Harshit says:

    Hi team,

    What happen in zerodha if my IM is less than SPAN margin. Will they give a call or directly square off the position? Als, if I have sufficient money in trading account, will zerodha automatically blocked more money to maintain IM.

    • Karthik Rangappa says:

      As long as you have free funds in your trading account, any shortage in the margin will be taken care off.

  166. Mahesh says:


    let’s say total margin requirement (both span and exposure) is 2lacs and I have 2lacs in cash at Zerodha on Monday. On Tuesday my M2M loss is 50,000 which I need to deposit. for that, if I square off my liquidbees of 50k on Tuesday; would that be sufficeint for margin requirements or do I need to deposit cash of 50k in account on Tuesday.

    • Karthik Rangappa says:

      That should do, Mahesh. However, the settlement for liquidbees happens on T+2, so margin penalty will be levied for 2 days, but the position won’t get closed.

  167. Piyush sarawgi says:

    Sir, is it the SPAN margin which should be there or the Initial margin? In the mobile app you have mentioned about intial margin amount should be there ( as per calculations in page 17) here it is different….

  168. Mahesh says:


    if I take a position in nifty for which required margin is 2 lacs and I have my liquid bees collateral margin of 3 lacs in my account. now if any day my loss is 50,000 and I sell my other liquid bees of 50,000 (not the pledged one); will that be enough or my position will be closed by Zerodha if I don’t bring 50000 in cash on the day of M2M loss.


  169. Gokul says:

    Hi karthick,

    I really love your content in varsity. It is throwing me more light about Investing and Trading. As a fan of varsity, I would like to give you a suggestion to add dark mode to the website.
    Thank you….

    • Karthik Rangappa says:

      Thanks for the feedback, Gokul. I’m also glad you liked the content. Sharing your feedback with the team.

  170. Mahesh says:

    Why HDFC 25-JUN-20 (Futures) is not available in Zerodha Kite?

  171. Mahesh says:

    Sir, I searched, may be at wrong place. I could locate CALL and PUT options but not FUTURES.
    I would appreciate if you could reply where and how can I locate it.


  172. Mahesh says:

    There is HDFC JUN FUT but one NSE WEBSITE Quote it is 25JUN2020.
    Is it same?

  173. Bharat says:

    Sir my question is regarding margin money… Sir sebi mandates that you need to have 50% of cash and the rest you can have as collateral for trading in futures and options……so my question is this if I have a liquid bees of Rs 5lakh value And if I have to trade in futures and options do I have to keep 2.5L cash in my account…..OR the liquid bees will be entirely considered a cash component and I need not have any money in the form of cash….?

  174. Bharat says:

    Sir you said that even if I have liquid bees I will still need 50% of cash in my account for over night positions …….but this article by Zerodha https://zerodha.com/z-connect/tradezerodha/margin-requirements/online-pledging-of-stocks-for-trading-fo 2016 says that liquid bees will be considered as equal to cash So I am confused please guide …

    • Karthik Rangappa says:

      Hey, I’m sorry…liquidbees is cash. No need for another 50% cash. Entire collateral margin received from liquidbees will be considered as cash.

  175. Dhananjay says:

    Hello Karthik,
    For sure this question is already been answered, but I couldnt find its answer.
    If I myself do not square off my futures position (long) till the date of expiry –
    – how does it automatically get squared off?
    – what is the price considered for this?
    – who on the other side does really buy this from me?

    Thank you.

    • Karthik Rangappa says:

      1) On expiry the contract ceases to exist, hence it will be settled. This is assuming you have enough margins for settlement
      2) The settlement price released by the exchange
      3) If you’ve kept your position open, then it implies that there is someone else with the opposite trade who has kept the position open.

  176. SUBHADIP DUTTA says:

    Sir, I have read most of the chapters you provided in Options. So I have one query regarding MTM in Option Writing. I’m giving you an example, please clarify my doubts if possible, and if I’m wrong somewhere please also rectify me. Suppose:

    On 17.07.2020 @8.30 AM: I Pay-in Rs. 70000/- to create an IRON Condor of NIFTY.
    On 17.07.2020 @9.30 AM: I formed an iron condor with following trades with 1 LOT:
    Short NIFTY AUG 11500CE @LTP 66.90
    Short NIFTY AUG 9500PE @LTP 70
    LONG NIFTY AUG 12000CE @LTP 20
    For which a margin has been blocked of Rs. 64402/- (SPAN=23521 + EXPOSURE=40881).
    It is showing Options Premium: Rs. 5767.5/-
    Now I’m remaining with (70000-64402)= Rs. 5598/- cash balance in my trading A/C.
    All the trades taken in NRLM category, i.e for carry-forward purpose
    lets not get into any calculations. That I was taught well by you sir.
    Now, On 17.07.2020 @3.25 PM: I’m having P/L= -1061.25/- **from where my series of query starts**

    1. What happens to my Trading A/C cash balance If I don’t want to book my losses?
    2. When will the Premium receivable amount i.e 5767.5/- get credited into my a/c? If I get it the next day, then Would I have the trading A/C balance like this: {(70000-64402)+5767.5}=11365.5/-
    3. If point No.2 happens then it means that, If I start to make losses, upto Rs. -11365.5/- I won’t have to Pay-in extra Cash for the MTM losses, Isn’t it?

    • Karthik Rangappa says:

      1) MTM in options writing is not like Futures. The margin blocked increase for the short position in case the position goes against you. But for this case, the margin increase will be negligible

      2) Premium received will get to your account on T+1 basis.

      3) Like I mentioned, there is no M2M for options, adjustments are done with margin increase or decrease.

  177. vinay says:

    Hi Karthik,

    Fantasti explanation.Please clarify the following qns :
    1)who decides leverage ? It changes with vix but will there be any maximum/minimum cap on this ?
    2)Currently NIFTY50 leverage is abt 5.7 times ..What is the maximum leverages we can get on nifty 50 when vix is about 12-13 ?
    3)where can we get historical data for nifty leverage
    Thanks in advance.

    • Karthik Rangappa says:

      1) Used to be brokers, but not regulators have a say. Yes, ViX also plays a role. Higher the Vix, lower is the leverage
      2) 12-13 on ViX is low. But I think going forward, the leverage will be fixed at 5 time at the most
      3) This is not standardized, depends on broker to broker.

  178. R. Raju says:

    We come across terms like Collateral margins, cash margins etc when we are dealing with option trading. We have not fund these terms in your tutorials. Please explain what are these and the rules thereof. How are they required to be maintained with the exchange and in what form they are required to be maintained.

  179. Shubhendu Maity says:

    What if on the very next day of entering into Futures Contract (ie.12 Dec) there is an extreme price movement and future price fall by rs. 130 ie. Future price falls to Rs.810
    And available cash balance is not sufficient to meet SPAN as well as Exposure Margin. ie. Entire cash balance is wiped out by M2M loss still there is an shortfall..
    Because available cash balance at beginning of the day rs.26659 is less than M2M Loss ie.130*250=32500..
    Please reply….
    Thanks for giving your precious time…

  180. Kishan Patel says:

    Hello Karthik,
    First of all, thank you for such an outstanding resource and that too for free. All cash flows from my account are done only at the end of the day, right? I mean if at some point in time during the day, my cash balance was less than SPAN because the value of the future fell and my balance was insufficient, but at the end of the day, everything was fine and my cash balance was more than SPAN as the future price increases. So I don’t have to worry because, at the end of the day, my cash balance is more than SPAN and the exchange will credit/debit money only at the end of the day. Am I correct?

    • Karthik Rangappa says:

      Except for margins, everything is on an EOD basis. Margins have to be adequate through the time you have a position in the market.

  181. Aditya Agrawal says:

    Hi Karthik, this is amazing content. I’ve read this a couple of times over the years and keep returning to the Zerodha Varsity. Thank you for taking the time to write this.
    One thing that’s not super clear to me: why is SPAN + Exposure Margin charged in this way (% of contract value) rather than the total possible loss? e.g. today (1 Sep ’20) the zerodha margin calculator suggests that for selling a 13800 Call for Nifty 24 Sep and buying a 14000 call for the same expiry, the SPAN margin is ₹4.1k and the exposure margin is ₹25.8k. My maximum possible loss here is (200 points spread X 75 in a lot = )₹15K. Why is Span lower than this and why is exposure more than this? Ultimately more margin than what is strictly required is being blocked.
    I’ve heard some explanation about the broker won’t know if you exit the buy position leaving a naked call, but that’s not true – they’re able to figure out when you do that and increase your margin requirement (even if just SPAN). So why is it done this way? I’ve also traded options a little in the US and my brokerage (Schwab) would only block the max loss.

  182. LMGOYAL says:

    If a broker/consultant is given the authority to do trade in derivatives on our behalf with power of attorney given in favour of broker, with cash and securities transferred in our account with broker and now in trades he suffers loss in our a/c and in the a/c of other clients too,can he or the clearing corporation use our money and securities to cover the losses of others also.The power of attorney specifies that our funds and securities can be used as margin for trades done in our a/c only.INcase of need for money to meet the obligations who does the sale of shares .Dont the proceeds come to respective ledgers,I found your post/lecture very enlightening .Thanks

    • Karthik Rangappa says:

      No, no one can use your money to cover the losses of others. However, few brokers have done such things in the past, hence its best you dont allow anyone to use your account to trade on your behalf.

  183. Thiyaheswaran says:

    How to pledge cash market holding to increase margin ?

  184. Vinay says:

    Hi, I am placing banknifty fut sell using BO option Market order for a quantity of 100 means 4 lots. To change stop loss or target do I need to go to each order of these 4 lots and do manually as the buying price for each lot is different. What is the solution for this problem.

  185. vinay doki says:

    Hi, I am placing banknifty fut sell using BO option Market order for a quantity of 100 means 4 lots. To change stop loss or target do I need to go to each order of these 4 lots and do manually as the buying price for each lot is different. What is the solution for this problem.

    • Karthik Rangappa says:

      Depends on how the order has been executed. If all trades in 1 trade, then you modify just once, else manually all the legs.

  186. Sujith says:

    Hi sir,
    There is no table of contents in pdf format of technical analysis module , fundamental analysis module and Options module.

  187. Divya Agrawal says:

    What is the meaning of the position here ?
    What if the buyer after buying the futures is having the loss and his cash balance is less than SPAN amount and he is not willing to pay the broker the required difference in the cash balance and SPAN margin amount ?

    • Karthik Rangappa says:

      Position refers to the long or short position you’ve initiated in the market. Well, the buyer cannot refuse that because the position will be cut off by the broker the moment the margins (which is already blocked) dips below the specified level.

  188. Sunil Agrawal says:

    Awesome job in writing this detailed article Karthik. I watched many videos on this topic over YouTube however all my questions and queries got quenched after reading your full article here.

    Thank you so much.

  189. Suhasini S. Pokhare says:

    Dear Sir..
    Above explanation is very good..
    I need to know more about Exposure importance ..is it actually a loss ?
    I am new to futures..pls guide..

  190. Shashank Pendyala says:

    Hi Karthik,
    From what I understand, longest contract one can purchase is only for 3 months. Also as per margin calculator I don’t find much difference in pricing between 1 month and 3 months.
    1. In that case why can’t everyone buy 3 months contract to be on safer side and exit position when they book profits instead of 1 month contract?
    2. Is buying the contract for 1 month and then for 2 months after 1 month expiry is same as buying for 3 months? Since futures price changes on daily basis so margins will be updated so how does it matter whether 1 month or 3 months?
    3. For all stocks, we only have 3 (based on months) categories to buy contracts?
    4. What if liquidity is less for stock i.e. there is no counter party to exit the position? Is this practically possible and how will this situation handled?

    • Karthik Rangappa says:

      1) The price difference exists, look at it from a % point of view. Besides, longer-term contracts are not liquid enough
      2) Technically they are the same.
      3) Yes
      4) You cant transact as easily as you could with a 1-month contract, higher the liquidity, easier to transact.

  191. Babu says:

    Is there any limit for future short position limit in amount/lot nos for a single demat account in future contracts. Once if one short in future when it needs to be square off. On expiry date or before. If the buyer wants to squre of as the price in increase, can the seller can wait till the expiry to square off/ price fall to buy the future contracts

    • Karthik Rangappa says:

      I’m assuming you are asking this from a retail investor’s perspective. Yes, there is practically no limit. You can square off the position anytime you wish, no need to wait to expiry.

  192. aditya raghuwanshi says:

    sir suppose we sell 1lot of banknifty any option then the margin blocked for that position can be used same day after we square off our position or not and can we use the margin that is blocked for next day trade or not

  193. Balaji says:


    What happens if I don’t close my futures position on expiry day and will the MTM be posted at the end of expiry for expiry day close price? please advise.

  194. Abhisekh says:

    is your theory updated with new sebi rule

  195. Tanjib Raut says:

    Respected sir,
    Thank you for this outstanding work .thank u very much.your teaching is best.
    I think u made a mistake on same topic in varsity app. You took cash balance of first day after closing price as sum of margin amount w.r.t closing price & m2m profit or smthmng else i cant found.
    From above (varsity web) perspective it should be sum of margin amount at the time i bought future before closing & m2m profit. Due to this there is mismatch in final profit calculation. You stated initial blocked margin mismatched with what u considered . It should 93316 ₹ (in app)
    Kindly revisit the app. N thank u very much for ur efforts🙏

  196. Dev says:

    I want to know , if the expiry of an X share is 23 Jan and I have bought 1 lot on 15 Jan , on 16th Jan when I sell the holding booking some profit say 2%, and on the next day , ie . 17 Jan the price rise by 1% , the person who has bought the 1 lot from me gets the profit of 1% , right? . Then am I liable to pay him that 1% ,as I have sold it to him ?
    If Yes then , what is the use of squaring of my trade before expiry..
    Please answer

  197. Jacob says:

    Dear Sir,
    So Divis Lab 25/02/21 future closed at 3720 while the settlement price is 3696 on 03/02/21. Please see attached imaged below.
    I understand by the future costing, the near month contract is much above its fair value. Is this a good arbitrage opportunity to sell the future and buy the spot?
    Also assuming if I have bought the future contract at 3715 while my M2M be 5 X lot size or 19 X lot size?

    • Karthik Rangappa says:

      Yeah, you can sell Fut and buy spot, but assuming you lock in the difference, you need to check if its good enough to make up for the costs incured. If yes, then there is a small trade opportunity.

  198. Anil Rana says:

    From this can we understand that our money will never become zero or negative because broker has square off our position when it reaches below SPAN ?

    • Karthik Rangappa says:

      That’s right, but if there are sudden and drastic price moves, then it will be tough for the broker to manage these positions as well.

  199. Sheirsh says:

    One doubt that i have is, for ex – if there is a drastic downward movement of a stock and cash balance falls below SPAN requirements. in this case , broker will square off or sell off my position ,right, just wanted to confirm that that there must be a buyer for my squared off/selling position right, otherwise it wont get squared off, i know markets have a lot of people, but in case there is no buyer for my position that the broker has to square off, what happens in this case, if this case happens (assume).

  200. Sheirsh Saxena says:

    What is the probability of this case happening. Since i am just starting to look into future, i am caught cautious of these cases where i cant find buyer/seller to square off my position.

  201. Roshan says:


    All through learning @varsity i feels indebtedness towards you, I truly regard you as Guru, the way you taught is awesome.

    • Karthik Rangappa says:

      Hey Roshan, thanks for the kind words, I feel humbled. I hope you continue to learn and enjoy reading the content on VArsity 🙂

  202. Sheirsh Saxena says:

    So if the order remains pending(since no buyer ), and i dont have the money to receive the delivery, what will be the scenario then.

    • Karthik Rangappa says:

      It will be settled at expiry. Remember when you transact, there is a counterparty to the transaction. Upon expiry, everyone has to settle that.

  203. Sheirsh says:

    But how can it be settled, since I don’t have the adequate funds to receive delivery , and since there is no cash settlement, the counterparty has to deliver and i have to pay for that delivery, but due cash shortage I cant actually take the delivery and neither have i sold my position before expiry , so i am in a fix.

    • Karthik Rangappa says:

      In the absence of sufficient margins, the position will be squared off by the broker. To avoid being stuck, the action of checking for margins and sq off the position starts 3 days before expiry. It is highly unlikely that the trade wont be closed in 3 days.

  204. SHAMSHA ALI RIZVI says:

    Hi Sir,

    Can you explain when the Span & exposure margin return in d mat account ? When ever I sold the future then same day SPAN & exposure margin will credit back to d mat or it will take time ?

    Shamshad Rizvi

  205. rahul says:

    I have some basic confusion on shares pledged against margin.
    If I pledge a scrip whose current market value is Rs 1 lakh , after 10% haircut, I will be eligible for a margin of Rs. 90,000 which i can use for trading.
    Do I have to then pay the Rs. 90,000 back to the broker in a stipulated no. of days or can I continue to use the margin without any payin as my shares are pledged as collateral?
    Please advise.

  206. Rahul says:

    Thank you for your reply.

    In case i use the pledged margin to buy shares worth Rs. 90,000, in how many days do i have to transfer the funds for this?

    Please advise.

  207. vinayak says:

    is seller have to pay some kind of margin?

  208. paridhi says:

    thanks a lot for making it simple and easy to understand …….

  209. ProfessionalTrader says:

    What happens to my Future contract and balance if a stock crash overnight?

    Suppose I have a Future position with 20 Lakh paid as M2M with a contract value of 100 Lakh. Suppose the stock crashed overnight (fraud, bankruptcy) and the stock start trading lower circuit to circuit with no liquidity in Futures for several days.

    Now even if my position is squared off, my balance will be negative in 60 Lakh. As a client, what will be my liability at this point? Can I just forget about the negative balance and let someone else bear the loss instead?

    What usually happens in such scenarios in real life?

    • Karthik Rangappa says:

      In the event that you are unable to exit, then the position will be settled based on the settlement price available post expiry. You will be obligated to take delivery or give delivery of the stock based on the position you’ve taken.

  210. Priyank says:

    Consider the below example:
    Say in February SBI spot is trading at 300 at 9.30am and its April futures is trading at 310 (implied interest of 3.33%). Now at 11.30am spot went up to 320 and at 3.33% implied interest futures should be traded at 330.7 (ignore other things like brokerage, speculations, etc.). Now consider trader A who has longed at 9.15 in spot and at 11.30 he squares off. He gains Rs.20 (320-300). Now consider trader B who has longed at 9.15 in futures at 310 and at 11.30 he squares off. He gains Rs. 20.7 (330.7-310). The difference of 0.7 (20.7-20) is due to interest of 3.33%. Now, as per mark to market explanation trader B should get Rs.20.7 TODAY and trader A should get Rs.20 TODAY. So essentially, trader B receive interest of Rs 0.7 TODAY itself i.e. he doesn’t have to wait for 2 months for receiving the interest amount. This is logically bothering me and my question is why MTM payable/receivable TODAY is calculated is not time adjusted?

    • Karthik Rangappa says:

      The P&L for derivatives trade is settled on T+1 basis, meaning you will get the funds the very next day. No need to wait till the expiry of the contract.

  211. Priyank says:

    Thanks for Reply Karthik but my question is not answered exactly. Please re-visit my question once. I want to understand that FOR SAME DIRECTIONAL VIEW for same security (SBI) when you are trading in futures you are getting 20.7 and when you are trading in spot you get 20.0. Theoretically, for same information there should not be different profit.

  212. Shrividhya Srinivasan says:

    Hi Kartik,
    Want some more clarification for M2m.
    Eg. I sell current month nifty future according to technical calculations. On that day it should give 100 points where as it didn’t reach instead it went against the trend. I achieved target on 3rd day of trading.

    How to calculate m2m. ?
    EVERYDAYS CLOSING – traded day or
    Previous day closing – opening of next day

    • Karthik Rangappa says:

      Everyday closing is the reference price. So for today, it will be the difference between today’s closing and y’day closing multiplied by lot size.

  213. Indresh Kumar says:

    The word for making things better is ‘improvement’ not improvisation.

  214. Prince Gandhi says:

    So in the example you mentioned of buying HDFC Bank Futures, on 10th Dec 2014, the total cash balance at the end of the day was Rs 29659. But the required margin was just Rs 29375. So the entire cash balance of Rs 29659 will be blocked or only Rs 29375 will be blocked and the rest we can use for another trades?

  215. Prince Gandhi says:

    And if both SPAN + EXPOSURE is decided by the exchange, that means that the required margin for F&O across all brokers will be same, unlike cash segment, right?

  216. Aditya Garg says:

    Thank you so much Karthink for such great content. Duly appreciate it.
    I had a samll doubt. Its quit eevident that one must manitain some cash balance over and above the margin required to buy futures. Can you specify what amount of cash balance over and above the margin requiremnt would be sufficient? (As a %age of contract value)

    • Karthik Rangappa says:

      Hmm, depends on the volatility of the underlying. Higher than volatility, higher buffer and vice versa. Can range between 5-10%.

  217. Kedar says:

    Hi Karthik,
    If I Pledge shares with the broker, then can I get margin to trade in futures ? Also, in this case, how does P and L a/c gets settled on daily basis if I do not have a cash balance? Or it is necessary to maintain cash balance always ?

  218. Divakaran K says:

    Is it applicable to equity ?

  219. Divakaran K says:

    Is it m2m applicable to equity ?

  220. SUGANTHI says:

    whether option buyer get the m2m profit or not

  221. Goirik Chakrabarty says:

    Can I the margin be 100% pledge margin?

  222. Sam says:


    I am long in futures with enough cash balance, support the market falls and to avoid margin call, can I go short on futures, so will this compensate the M2M profit or loss?

  223. raj says:

    Require clarification from your side that when there is Existing Position in Futures and on a particular day there is no new trade transaction, however, the rate of existing stock (trade) increase by 4% due to which Margin Penalty was there despite having M2M (Profit) on a particular day due to increase in price.”

    As per Above HDFCBANK Example There Must be no penalty or margin shortage.
    Is there is any change IN rules for exchanges.

  224. venkatesh says:

    Please take proper lesson on new margin rule. According to the research that I have conducted so far most of the option seller stay’s away from option selling because they don’t have proper knowledge on option margin. At first zerodha calculator show less margin requirement and the margin keeps on varying after taking the position. So most of the people lost trust in zerodha. Before september it was not the case. If you already have any article regarding this mail me those article.

  225. raj says:

    kindly guide me. above hdfcbank example valid in current margin rule where SPAN AND EXPOSURE both need to get reported to exchange

  226. Amey Palsule says:

    Excellent explanation, thank you for all your efforts.

  227. KAT says:

    What if I cannot answer the Margin Call from the broker because I am busy with some other work? Will the broker wait for my call before squaring off?

  228. SIDDHARTH says:

    I booked in option selling but in ledger it shows debit of amount in net obligation …please explain

    • Karthik Rangappa says:

      Yes, that means to say your funds are taken in for taking delivery obligation against your option position. Please do call the support desk, they will help you with it.

  229. Prasanth says:

    Hello sir,
    I have doubt in MTM loss , if ENd of the trading day my MTM loss is Rs 10000, in my trading account funds avilable only Rs 1000 ,
    But having equity collatral l 15000 Rs, liquid collatral worth 120000 Rs , margin blocked for this trade was 40000 Rs,

    At above condition what will happen end of the day sir

    • Karthik Rangappa says:

      The MTM loss will be debited on the ledger. You’ll be charged delayed payment charges for the debit balance till you clear it by adding more money or sell stock.

  230. Prasanth says:

    Hello sir,
    I have doubt in MTM loss in option selling , if ENd of the trading day my MTM loss is Rs 10000, in my trading account funds avilable only Rs 1000 ,
    But having equity collatral l 15000 Rs, liquid collatral worth 120000 Rs , margin blocked for this trade was 40000 Rs,

    At above condition what will happen end of the day sir

  231. Prasanth says:

    Ok thanks sir

  232. Franklin Loyola says:

    Hii Sir,
    ->How long will the broker wait for us to infuse funds to cash balance after the margin call?
    ->How will the Margin calls be done,is it through phone calls,mails,SMS,etc?

    • Karthik Rangappa says:

      Depends on how your margin utilization is. If it is within the limits, the broker gives you a bit of time, but beyond a certain threshold, the broker will cut the positoion.

  233. Rizwan Gull says:

    Sir, th auto sq. Off conditions?

    can’t they wait for 2 trading days. Or pay it off till client replenishes it back.. 2ndly if it’s loss for continous 10 days then how❓ it works

  234. Sagar Bhosale says:

    Beautifully articulated and really helped me to understand the concept of margins and M2M.

    But still, I have a doubt that if I take multiple future trades i.e buy and sell in a day how will be this calculated?
    For a particular script the Buy price – sell price = P/L OR the overall buy price avg – overall sell price avg= P/L for the day.

    • Karthik Rangappa says:

      Glad you liked the content, Sagar. If you take multiple lots, then the P&L is based on the average buy and sell.

  235. Chetan Nahata says:

    Um… I’ve been learning through the varsity application and I’ve really loved it all … So just wondering if there’s also one where we can get similar learning opportunity about NFT, crypto, real estate and so on….

  236. Manoj Kr Mahanta says:

    In Intermidiate Quiz ((Future trading) of Varsity app, there is a quation No 6 ” At the trader shorts ICICI bank futures at 383, the stock closes at 379 for the day andcopen at 385 the next day. What is his M@M P&L ?
    Ans. Is given as “A profit of Rs 4/”! But how? pls explain.

  237. Md Miquail says:

    Do I read this document or it’s better to go for VARSITY which is available on play store?
    Which one is beneficial…?

  238. Raj says:

    Hi Karthik, Thanks a lot for the wonderful content. I have doubt with “Futures is a zero-sum game” statement. Suppose am buying futures, that means there is someone who is selling me, he may be shorting or squaring off his long position. Now if the price goes up, I will be making a profit, while he would be making a loss(my understanding), if shorted, but what if he was squaring off his long position? I am sure he doesn’t incur any loss as he has squared off. Who is the counterparty incurring a loss in the transaction? Thank you in advance.

    • Karthik Rangappa says:

      Ah, it is not in that context Raj. When you buy and hold stocks and the stock price increases, new wealth is created for shareholders. In futures, wealth just oscillates between buyers and sellers, no new wealth is created.

  239. Raj says:

    Thank you Karthik, can u pls clarify on this bit please “Who is the counterparty incurring a loss in the transaction?”

    • Karthik Rangappa says:

      The counterparty can be anyone like you and me. Its just that they have an opposite view compared to yours.

  240. Yash says:

    hello sir, i want to ask that
    whenever we take trade in futures our margin amount gets blocked and we cant use that money in any other work, but here above it is written if we do not maintain the span margin in our demat we will be charged with penalty, but how’s that possible. if we have to enter into the trade we should have sufficient balance in our demat and thats get blocked.
    “SPAN Margin is more important between the two margins as not having this in your account means a penalty from the exchange.”

    • Karthik Rangappa says:

      Yash, there are few situations where the margins may increase more than the blocked margin (for example volatility of stocks shoots up and exchange imposes adhoch margin). So in such situations, the penalty may increase.

  241. Shahzada says:

    Do the same margin and M2M principals apply for Intraday trading?

  242. Prasenjeet says:

    Hi Karthik,

    If the Pran margin amount goes below zero, and I don’t want to re-infuse any money, will I get back my exposure m@rain money by squaring off? Or that money too has gone. Thanks

  243. Ankit solanki says:

    What is difference between required margin and final margin??

  244. Saket says:

    Outstanding explanation!

    Better than Investopedia!!

  245. Pawan says:

    In the video session you mentioned about buying a particular months contract and selling the next month contract to reduce the margins but what will be the effect on the profits and the losses made. Please do help me understand this part.

  246. Jay Arvind Patil says:

    Hi…In the varsity application…in this particular chapter…the calculations in HDFC Bank examples are wrong…The contract value calculation is correct…but the Span and exposure margin calculation is wrong….And many thanks for this absolutely incredible knowledge..Much support to zerodha team

  247. Rajpurohit says:

    Splendid work, thanks for sharing this info, it’s very clear and easy to understand with explainations provided.

    Thank you.

  248. HARI VINOD JOSHI says:



    • Karthik Rangappa says:

      No, you will have to take delivery at the settlement price, of the expiry day, in your example, it is 280.

  249. Prem says:

    I read the complete futures module and went for a trade. Got to know with a loss..you didn’t explain gap up and gap down scenario with futures…in an example you are explaining the pnl calculation as if one stock is opening at the same price which is previous day’s closing…what if one short sold the future at the last hour on a trading day being bearish and then next day there was a gap down opening in the stock of 1-1.5 percent which is normal. A stock being closed at 3340 on one day and being opened at 3290-3296 on next day is not very unusual. Stock price starts to rise and went to 3305. Trader preferred to exit the trade. As per your fourth method of pnl calculation he should be in profit since he short sold at 3340 and bought back at 3305. But with m2m logic he would be in loss. Broker also says m2m is used for futures.

    • Karthik Rangappa says:

      As long as the price is below the previous day’s reference price, you are in profit right? Here 3340 is the reference price, you’d still make a profit if the stock trades at 3305.

  250. Umair says:

    In a short options trade, when does Zerodha actually square off the position – when the cash balance falls below SPAN or below SPAN + EXPOSURE?

    In other words, can we keep a short options position in Zerodha as long as we have cash balance that covers SPAN margin requirement?

  251. Rafik says:

    Future 1 lot stop loss ke saat (Interday ) buy-selle ke liye D mate Acount me kitna balence hona chaahie.
    Example. Share praice 400 hai.
    100 ka lot size hai.
    Buy praice 400 hai
    Stop loss 5 rupe niche hai.
    Stop loss hit hone par 500 loss hoga.
    (Acount me kitana paisa hona chaahie) .

  252. Shubham says:

    I’m assuming this span & exposure are calculated keeping in mind the worst case scenario’s, that is, the upper and lower circuits right. Cause this is the only reason it makes sense that if I’ve collected or locked a certain amount then within a day what is the worst thing that can happen and as a regulator I’m able to clear all the obligations from my end. Correct me if I’m wrong.

  253. Sathish says:

    Isn’t the leverage 5 times in Zerodha? Because in Futures the Contract value for NIFTY is 882500(17650*50) but margin is much lower (near 100000) and in case of options, margins for 17500 CE is around 80000. I understand that the volatility is lower but still 5 times leverage means margins should be around 176500 right? Or am I missing something here?

  254. SB21 says:

    in the open positions section in zerodha, i can see the current profit and loss of these futures. That profit and loss is with respect to my entry price. So even if i check it 1 week after entry, it shows my current situation with respect to my entry price. However, my funds in zerodha will already include my profit/loss till the previous day because the margins are being settled daily. So if i exit now, I will only get whatever is balance for that last day. Is that right? (i hope ive been able to put my doubt clearly for you)

    • Karthik Rangappa says:

      So you get the net P&L i.e.the difference between entry and exit price minus all the applicable charges. In Future, everything is marked to market, so when you exit, you will get whats the balance for the last trading day.

  255. Pratik Patel says:

    To buy nifty future, around 1 lac margin needed.
    For that, I got around 5 lacs as margin( not as cash)
    Suppose, worst case scenario in the history, 2008 fall and market fall 50%. So contract point of view, I am at loss of around 4 lac on m2m basis.

    At that time, I have only 1 lac as cash.
    Then what would happen?
    Zerodha gives me atleast one evening to move money of 3 lac from bank( I believe it is must, right?) to zerodha or zerodha would Square off the position in the absence of cash?
    If have enough margin,
    How much cash money required in zerodha to avoid unnecessary Square off?

  256. Deepak Goyal says:

    Dear Karthik

    In case, heavy gap down in the morning, and client have only IM (SPAN + Exposure) say 12% in the account as per stipulation. In case, gap down is 18%, how the broker will recover the money i.e. 6% of the contract value. Client doesn’t have any other funds in the account or doesn’t hold any position. You will square off and recover 12%, is okay but what will happen with the rest 6%. Just an academic question.

  257. Shivam Singh says:

    Dear Karthik

    I have pledged 10,00,000 Rupees worth of Nifty bees through my broker and I received 9 lakhs as margin to make position in F&o segment by which I have go long in Nifty futures but the next day Nifty is going down by 2% then I am in MTM loss of approx 2 lakhs but I have not any cash in my trading account Only I have margin worth of Rupees approx 8 lakhs can the loss is adjustable in margin or I have to pay in cash.

    Please clarify this.


    nice compilation, very nice examples, good study material, proper flow of topics and their details. Great job. Very very thanks to all the team of Zerodha varsity for providing such an excellent study material. Thanks

  259. sam says:

    Sir, now it’s October and if I trade 23rd November future, even though it is October I can hold my trade till November 23rd right.

  260. sam says:

    Sir , in another case, if my opening balance was 50 thousand and a Future margin cost 50 thousand same price as my whole balance. In this case , when am I likely to get a margin call, how much out of 50k when I loose am i going to get a margin call.

    • Karthik Rangappa says:

      You will start getting margin calls as and when the position goes against your direction of trade. I’d suggest you call the support desk for exact % levels.

  261. Pankaj Vig says:

    The example calculations on Varsity android application for this particular module are wrong in my opinion. Did anyone check?

  262. sam says:

    Sir, in options margin if the required margin in 150000 and final margin is 80000, can I still use the remaining required margins after executing and final margin is blocked from required margin.

    To sum up ; Required margin – 150000
    Margin required – 80000
    After execution 80000 is blocked, then can I use for trading the remaining 70k.

  263. Sai krishna says:


    Can you please tell me how the margin call will be financed ? Whether it should be financed through bank transfer or pledge margin (cash component) is enough ?

  264. rahul chawla says:

    For index futures, the margin is calculated based on the current level/price of the index or the futures price?

    For e.g. Current price is 15180 and the futures price is 15000. 30 is the multiplier.
    Margin is 10 % and maintenance is 5%

    So we calculate the value and margin of the contract based on 15180 or 15000?

  265. satish semwal says:

    sir , I am a nifty future swing trader . generally i have hedge positions future hedged with option . the loss is capped but I am afraid of M2M , can it lead to unlimited losses while the loss is capped ?

    • Karthik Rangappa says:

      I’d suggest you enter these positions on an app like Sensibull and see how the P&L behaves. You will get a fair idea on the max loss 🙂

  266. satish semwal says:

    I tried it but sometimes it shows something and sometimes something else. I think it is not reliable because it took expiry of option accurately but regarding future it does not . for example ,i had nifty 50 future long position expiring on 30 November and also had option put ITM expiring 16 November . although it hit target but max loss was showing different at different times .

  267. Siddharth says:

    Hi Karthik,

    “Also, the profits are released when you terminate the trade completely (at least in Zerodha) and not while you are in the trade”

    – does this still hold true after 8 years?

    • Karthik Rangappa says:

      Yes, thats still true. Only change, I’d rather use the word square off instead of ‘terminate’ 🙂

  268. Siddharth says:

    Hi Karthik,

    Amazing content. I have couple of questions:
    1. Is everything mentioned in the chapter still holds true in 2023? I mean, this chapter might have been written back in 2014
    2. “Also, the profits are released when you terminate the trade completely (at least in Zerodha) and not while you are in the trade” – does this still hold true after 8 years?
    3. SPAN+Exposure margin. needs to be maintained during whole time when market is open or only at the end of the day during M2M?

    • Karthik Rangappa says:

      Most of the things are conceptually true even today. These are building blocks of futures. Small nuances change and that keeps happening as and when there are regulatory changes. For example, the biggest change is the way settlement is done for F&O contracts.

  269. Rahul says:

    Hi Karthik,

    Where can I get information around MTF – is there any article around the same?

  270. Siddharth says:

    Thanks Karthik, but if you can specifically answer for 2 & 3. Mentioning it here again:
    2. “Also, the profits are released when you terminate the trade completely (at least in Zerodha) and not while you are in the trade” – does this still hold true after 8 years? I mean, we cannot withdraw M2M profits?
    3. SPAN+Exposure margin needs to be maintained during the whole time when market is open or only at the end of the day during M2M? Let me illustrate the question with an example,
    let’s say the margin collected > SPAN at the start of the day as well as at the end of the day
    but if in case of excess volatility, during the middle of the day price fluctuates to the extent that margin gets then position will be squared off then & there? Or it will only be checked at the end of the day?

    • Karthik Rangappa says:

      1) M2M can be withdrawn on T+1 basis. But there is no M2M with options and the profits are realized only when you square off the trade.
      2) It should be maintained for as long as you have an open position. If you have a position, do constantly check for margin requirements. It shoots up intraday when there is excess volatility.

  271. Tangda says:

    is there any chance that my long position cannot be squared off in case of extreme loss over 12% daily and may carry upto expiry mounting the losses.


  272. Rahul says:

    If I have a collateral against Liquid Bees, could it be used for MTM cash margin if cash is below to SPAN Margin in Zerodha

  273. Naresh says:

    In FNO trade you gave the example where I buy at one price and 4 days later sell at a higher price earning a profit. In between, the M2M factor comes in. Whatever amount is credited or debited from my cash with you is accounted for in my books as a C/Asset, be it a negative or positive balance. At the end of the year how do I square off this account? Adjust it with my total profit/loss? Then my P/L account as in the example gets increased or reduced. Is this concept correct?

    • Karthik Rangappa says:

      You will either have FO profit or loss and your tax P&L should give you this information. Of course, your CA can help you with this.

  274. Mansi Joshi says:

    Great explaination in the simplest way possible

  275. Ram says:

    Hey Karthick,
    I follow Zerodha Varsity monthly and learn many new things from your modules, so thank you for your efforts to help us understand the market. Correct me if I’m wrong, but in India, when losses go below the Exposure Margin, a Margin Call is issued. However, in the U.S., a Margin Call occurs when the losses go below the Maintenance Margin. Is that right?

  276. Ram says:

    Then can you make a module for OTC market also. how different from Central Exchange market? The risk involved in OTC market compared to regulated market. That will be really helpful for my studies because I am learning many Basics thing in your module which is highly correlated with my studies.

  277. Pramod says:

    Hi Karthik, I had 500 lots of USDINR 83 CE MAY expiry and 250 lots of June USDINR Future. As the asset increased by 0.5 Paisa rapidly in a day, I exited the 250 lots of June Futures with profit. Had around 15 lakhs margin. Got a MSG in the evening that margin required now is 17 lakhs and to transfer funds or else the position would be squared off. Somehow managed to tranfer funds.

    Now for hedging is it a good idea to buy futures in the next trading day son that the margin required for the CE becomes less???

    • Karthik Rangappa says:

      If the idea is to hedge, then maybe you can initiate the position at the time of taking the trade itself?

  278. Vipul says:

    Thank you for the content, really elaborate. But I suppose I am the backbencher here, but will still go ahead and ask this question-
    1. I purchase HDFC Banks future current price INR 900 size 550 with initial margin blocked for INR 151000 (I had 151000 in my trading account). Now my cash balance in trading is 0. Will I be allowed to hold future position for lets say next 10 days?
    2. Same as above, but this time I have 5000 in my trading account, now the price moves to 100 from 900, will I be required to add money to my trading account?
    3. Is the future contract holder required to add cash to his trading account on a daily basis based on the M2M?
    4. And on expiry how does the Rollover work? Do we need to need to purchase the underlying or automatically next months contract is allotted?

    • Karthik Rangappa says:

      1) You can, provided you dont have a margin call. But I’d suggest you have some buffer funds as margin.
      2) Not really, as the prices have moved in your favor.
      3) Yes, thats only if the prices are going against your position or if the volatility has shot up and therefore the margin requirements.
      4) Here you go – https://www.youtube.com/watch?v=FqRB7NGnOtA

  279. Sunandan says:


    I don’t know if the question is already asked or not (if it is then sorry to ask again) but let’s say I buy a stock future of “xyz” which has lot size of 100 at price Rs. 100. Let’s assume it increased to Rs. 102 in 10 minutes from the time I buy on the same day. I assume my profit will be (102-100)*100 = 200. My position is now 10200 from initial 10000. My question is if I decide to terminate the trade (i.e sale the future) when will I get my profit value 200 in my account and when will the margin be released (which by SPAN and Exposure margin will be 12.5% of the contract value i.e.). Is the total value (initial margin + profit) instantly available? Can I use this money to buy another contract in some other stock?

  280. Mandar says:

    Hi, with M2M, it’s like the position is squared off everyday at market close. And margin for intraday is lesser, when our why would you opt for nrml rather than buying intraday every morning and squaring off each day?

    • Karthik Rangappa says:

      You could do that, but some of the large moves tend to happen at open (gap up/down), so you may miss that if you dont hold the position.

  281. Srujan says:

    Can anyone explain me how margin is calculated for option selling, the examples given here are all for long trades , so how’s it calculated for shorting the options?

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