Margin Policy can change at any point of time based on market volatility.
The following post will give you our standard margin policies while trading equity intraday & delivery, f&o, currency and commodity. You can trade equity either intraday or delivery on NSE, BSE and MCX-SX. If you are not enabled on the latter 2 exchanges, print the segment addition form and courier back to us if you wish to.
1. Stocks or Equity or Shares Trading
When you take a trade in equity and square the position off before the end of day, it is called as intraday equity trading. Since you don’t carry the position overnight, we provide you a margin or leverage of between 3 to 20 times on around 150 liquid stocks to trade for intraday. You can trade intraday at Zerodha with leverage by using these 2 product types while taking a trade.
MIS (Margin Intraday Square off)
When you use this product type, you commit on keeping the trade intraday and hence we give you a leverage between 3 to 10 times based on the risk and volatility of the stock. Our margin calculator tool has a list of all stocks and the MIS leverage you get.
When you take a trade using product type as MIS, if you don’t exit it on your own it will be auto squared off around 3.20pm.
If any intraday position or a MIS trade is not squared off on the same day due to any link or system failure or any risks associated with internet/wireless based trading which may occur at the end of the Client, Zerodha or the respective Exchange, it shall be treated as a Cash and Carry (“CNC”) or NRML position and carried forward to the next trading day. In case of such a situation arising, the onus of squaring off the position will be on the Client. Our RMS desk shall square off any such position, without the requirement of a margin call, if the necessary cash is not available in the Client’s account.
CO (Cover Orders)
Cover orders is a unique feature at Zerodha where you can trade intraday using market orders but with a definite and compulsory stop loss. Since the risk with such a position is low, the margin required is less and hence the leverage higher. When you trade intraday using cover orders, the leverage you get vary from 6 to 20 times(twice as much as MIS). But again all open positions get squared off around 3.20pm. Read this to know more on cover orders.
Our Margin calculator tool has a list of all stocks with MIS and CO margin/leverage.
When you buy stock and hold it overnight, it is called a delivery trade. At Zerodha, you need to use product type as CNC while placing a trade to take delivery of equity stock. The product type CNC will show up on your order window only if you have a demat account mapped to your trading account since you would require a demat to take delivery of the equity that you purchase.
At Zerodha we provide no leverage when you are executing delivery trades which mean that you if you want to buy Rs 1lk of stock as CNC, you will need this Rs 1lk in your trading account and similarly if you want to sell Rs 1lk of shares with product type as CNC, you will need these shares in your demat account mapped to your trading account.
2. Futures Trading – Equity (Stock & Index), Currency & Commodity
Futures as such are inherently leveraged which means that to buy X amount of futures you need only a small portion of it called as margin in your account. This margin to buy futures is stipulated by the various exchanges.
For NSE, Zerodha settles with exchange on T+0 and hence has the lowest futures margin requirement.
While trading futures at Zerodha you can use 3 product types:
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.
MIS (Margin Intraday Squareoff)
MIS is used by intraday traders as all open positions get squared off before the end of day. But since no position is carried forward overnight the margin required is also lesser than the exchange stipulated margins.
- For equity & Index futures, MIS margin: 40% of NRML margin, all MIS positions squared off around 3.20pm.
- For Commodity futures, MIS margin: 50% of NRML margin, all MIS positions squared off about 25 minutes before market closing
- For Currency futures, MIS margin: 50% of NRML margin, all MIS positions squared of around 4.30pm.
CO (Cover orders)
Cover orders is a unique feature at Zerodha where you can trade intraday using market orders but with a definite and compulsory stop loss. Since there is a stop loss placed, the risk of the position reduces and hence the margin required to take it reduces as well. Read this to know more on cover orders.
Using cover orders, you can trade futures with lesser margins than NRML and MIS. Presently Cover order facility is available for equity, commodity and currency futures.
3. Options Trading – Equity (Stock & Index) & Currency
When you buy options, either equity or currency there is no additional leverage we provide except in case of market orders where orders may get traded in value excess of funds available in the account. So if you are buying calls or puts of any contract, the premium required to buy them has to be present in your trading account. You can trade options either with product type as NRML or MIS, but since there is no additional leverage provided if you use product type as MIS, it is advisable not to use MIS while buying options since all MIS positions would get squared off before the close of markets.
When you short an option, the margin required depends on various aspects like underlying, expiry, volatility and more. We are the first brokers in India to have an online SPAN calculator tool which lets you calculate the margin requirement for shorting an option by mocking the position in the tool.
You can short option either using the product type as NRML or MIS. The SPAN calculator tool lets you know the margin required to hold overnight or NRML margin, if you trade using MIS you will need only 40% of that margin.
- The settlement cycle in India is T+1 day in case of F&O (Equity, commodity, currency) and T+2 day for Equity delivery. What this means is that any profits from F&O positions gets credited only the next day, and any sale credits from equity delivery trades happen on T+2 day. This credit is available for you to trade intraday, but there might be a short margin penalty applicable if you carry forward positions using this non-realized profit.
- When you send Market Orders in Options for multiple lots, our system checks only for the margin of the first lot and validates your order. For example, if you see the price of a Nifty option at Rs. 100 and you have Rs. 75000 in your account and you send a market order it validates only for the first lot and sends your order through. During execution if the price of the option goes higher, your order still gets completed although you will end up with a debit balance. This debit balance has to be cleared by you by end of day failing which you will be charged interest as per our policies until you clear the debit balance.
- Because of illiquidity of stock option contracts, market orders have been disabled on stock options. Only limit orders are allowed. Place a limit buying order higher than the current price or selling order below the current price, this will act as good as market order but will also protect from any impact cost due to illiquidity. You can place market orders on index options.
- For all intraday positions (MIS, CO, BO), even though we run square offs automatically, the onus is on you the client to ensure all MIS,CO,BO positions are squared before market closing.
The SPAN tool can also be used for calculating margin requirement for multi-leg trading strategies.
* this post was last edited on 8th Nov 2013