Margins play an extremely essential significance in derivatives (Futures and Options). To Understand margin shortfall, it is critical to understand the significance of margin trading in the derivatives market. Let’s Discuss it with Penalties and examples.
Table of Contents
What is Margin Shortfall?
Brokerages offer credit for futures trading in the F&O sections in accordance with their guidelines. In reality, these derivative positions are extremely risky owing to their fluctuating character and the little upfront capital needed to trade.
Accordingly, any negative price action can result in significant damages to the trader, broker, and counterparty. To maintain flawless transactions, a specific upfront money is paid to carry the futures position. This upfront money is termed as margin, and any gap in the upfront balance is called a margin Shortfall.
What is Margin Shortfall Penalty ?
If there is a shortfall on overnight positions kept in the brokerage account as specified by the exchange, the exchanges will charge a margin shortfall penalty. This fee is only applied to overnight margin shortfalls only. It is not relevant for Intraday holdings.
It is applied on everyone including Stock, commodities, and currency exchanges. You can check out the type of report you need on the links below and download the same from NSE website.
Shortfall Penalty Fees
If the overnight margin is lower than 1 lakh and the margin shortfall is less than 10% of the relevant margin, a penalty of 0.5 percent is imposed; if the margin exceeds 1 lakh or the margin shortfall surpasses 10% of the relevant margin, a penalty of 1% is imposed on the margin shortfall.
| Short collection | Penalty % |
|---|---|
| (Less Rs 1 lakh) & (< 10% of relevant margin) | 0.5% |
| (equal to Rs 1 lakh) & (= 10% of relevant margin) | 1.0% |
Note:
If the shortfall extends more than 3 days, a 5% margin penalty will be applied per day after the 3rd day of the shortfall. All penalties received in accordance with SEBI regulations will be submitted to the Investor Protection Fund by all exchanges.
Example
Consider a trader, who has INR 98,000/- in cash in his trading account and has carried forward 2 lots of reliance Futures, for which he needs at least margin of INR 98,000/- as per the exchanges’ requirements.
Nevertheless, because of market volatility, his account was debited for INR 6,000/- on the same day for his liabilities. Because the margin is less than 1 lakh in this situation and the margin shortfall is less than 10% of the relevant margin, the penalty will be 0.5 percent of the shortfall, or INR 30/-.
The table below shows how the penalty will be applied in different margin shortage scenarios.
Margin Table
| Day | Infosys Future Margin(In INR) | Margin Shortfall (In INR) | Penalty Fee(In INR) |
|---|---|---|---|
| Trading+1 | 98,000/- | 6,000/- | 30/- (0.5%) |
| Trading+2 | 98,000/- | 5,000/- | 25/- (0.5%) |
| Trading+3 | 98,000/- | 11,000/- | 110/- (1%) |
| Trading+4 | 98,000/- | 9000/- | 450/- (5%) |
| Trading+5 | 98,000/- | 7000/- | 350/- (5%) |
Note:
As can be seen in the table figure, the shortfall on T+3 Day remains at Rs 11,000/-, which is more than 10% of the minimum margin.
As a result, a 1% penalty on shortfall, i.e. Rs.100, is levied on the trading account. Furthermore, if the gap lasts longer than 3 days (T+4 onwards), a 5% penalty will be applied, as shown in the table figure.
Exemption
If a shortfall in margin collection from customers is caused by a volatility of 3% or more in the index and the relevant currency pair on a particular day (day T), the penalty for short collection will be applied only if the difference is more than 3%.
It is determined by closure to closure value of Nifty/Sensex across all equity derivatives and currency futures for all currency derivatives.
Conclusion
Nevertheless, Margins are important but also come with a lot of risk. Investors should always remain careful while trading in the F & O segment. Experience and awareness of regulations can help investors to become successful traders.
This is all from our side regarding the Margin shortfall. Let us know your views in the comment section.
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What is margin shortfall in hindi ?
आसानी से लेनदेन को बनाए रखने के लिए, वायदा बाज़ार में स्थिति बनाने के लिए एक विशिष्ट अग्रिम राशि का भुगतान किया जाता है। इस अपफ्रंट मनी को मार्जिन कहा जाता है, और अपफ्रंट बैलेंस में किसी भी गैप को मार्जिन शॉर्टफॉल कहा जाता है।
Margin shortfall penalty in hindi
अपफ्रंट बैलेंस में किसी भी गैप को मार्जिन शॉर्टफॉल कहा जाता है।
How to pay margin shortfall in Angel Broking?
It will be deducted from your account whenever you will have sufficient.
How to avoid margin shortfall?
Always keep some extra funds in your account to avoid margin shortfall.
Margin shortfall penalty calculation?
It will be calculated based on the time period and amount starting from 0.25 to 5%.
