SEBI (Securities and Exchange Board of India) imposed Peak Margin concept in to picture from July 20th, 2020. Peak Margin concept has been introduced in Equity, Commodity and Currency segments from December 1st, 2020
Whenever a trader takes a position in Futures and Options for a designated period of time, a trader should deposit certain amount of money to the exchange as a margin. The trading is done in Lots in F&O. This means a trader cannot buy shares as they buy in equity. For example HDFC Bank can be traded in a lot containing 550 shares. Similarly, the lot size change from stock to stock
This Margin system consists of SPAN and EXPOSURE margin. If the required margin is not collected from the client as per the regulation by the exchange, penalty is levied to the client. This penalty varies from 0.5% to 5%. This is huge
Before December 2020, margin reporting was done only by end of the day on the position taken by the client. But after December 2020, the exchange asked the broker to collect the peak margin. Which is in a day, if the margin reached above the capital, penalty will be levied. For this, exchange will take 4 snapshots in a day and compares the margin utilization. This will avoid certain client and brokers by over utilization of the capital and stop manipulating the system
- December 2020 to February 2021 - 25% of the leverages given so far will be cut
- March 2021 to May 2021 - the leverage cut will increase to 50% from 25%
- June 2021 to August 2021 - the leverage cut will increase to 75% from 20%
- Starting from 01st September 2021 - No leverage will be given and the full SPAN + EXPOSURE margin should be provided by client in their trading account
From 01st September 2021, there will be no additional leverage for intraday position. The same margin which is applicable for overnight positions should be available for the intraday positions. By this way, there will be a reduction in intraday short sellers and manipulators. However people with huge capital can still do intraday selling
This is an welcome move by SEBI, as to some extend the manipulation will be removed. This might be one of the reason most of the stocks reaching its all time high from September 01st, 2021. The sellers are reduced
"If you're smart you don't need leverage; if you're dumb, it will ruin you" - Warren Buffet
"There is only 3 ways a smart person can go broke: Liquor, Ladies & Leverage" - Charlie Munger
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