Types of margin in F&O
| Margin | What it covers | Who pays it |
|---|---|---|
| SPAN margin | The largest likely one-day loss, from the exchange's risk scenarios | Futures traders and option sellers |
| Exposure margin | An extra buffer on top of SPAN | Futures traders and option sellers |
| Premium | The full price of the option | Option buyers |
| Extra margin on expiry day | An additional 2% on short index options | Option sellers on expiry day |
Buyers and sellers
- Option buyers pay the premium in full. Their maximum loss is the premium, so no further margin is needed.
- Option sellers and futures traders pay SPAN and exposure margin, because their losses can be much larger than the money received.
- Hedged positions need less margin. A short call with a long call further out, for example, has a limited loss, so its margin is lower than a naked short call's.
An example
Example
One lot of Nifty futures at 25,000 has a contract value of 65 × 25,000 = ₹16,25,000. If SPAN and exposure margin together came to 12% of that value, the position would need about ₹1,95,000 in margin. The actual rate changes daily with volatility, so check it with your broker before you trade.Formula
Margin required = SPAN margin + exposure margin, less any benefit for hedges, plus any extra margin the exchange or broker applies.Why margin changes
- Volatility: SPAN margins rise when markets become more volatile.
- Expiry day: short index options need extra margin, and calendar spreads lose their offset.
- Position changes: closing a hedge leg before the short leg raises margin straight away.
Margin and MTM
For futures, gains and losses are settled daily through mark-to-market. A losing futures position reduces your free margin each day, and the broker may ask you to add funds or close positions.
Related terms
Learn more
Frequently asked questions
Why is option selling margin so high?
Because a short option's loss is not limited. The margin covers the loss in the exchange's risk scenarios.
How can I reduce margin?
Hedge the position, for example by buying a further out-of-the-money option. Hedged positions usually need much less margin.
Why was my order rejected when I have money in the account?
Money blocked for other positions is not free margin. Check the margin for the full position, including expiry-day margin.
Trading involves substantial risk. Examples on this page are hypothetical and are not investment advice.