What are the different types of margins levied by the exchanges?

1. Value at Risk (VaR)
  • To cover the potential loss (due to uncertain risk conditions) that might occur while dealing with securities at a given timeframe, brokers cover collect VAR. 
  • 1 day-  Liquid securities
  • 3 days- Illiquid securities

2. Extreme Loss Margin (ELM)
  • It is the margin blocked in addition to the VAR margin for gross open position.
  • ELM is blocked for risk situations that are not covered in the VAR estimation.

 3. Daily/Initial Margin
  • At the end of every trading day, brokers collect margin against open positions on the buy/sell side from their clients (to safeguard against eventualities that might occur between two trading days). 
  • In the Derivatives segment, both the buyer and seller have to deposit an initial margin before the opening day of the Futures transaction.
  • It is usually calculated by taking into consideration changes in the daily price of the underlying (e.g., the index) over a specific timeline.

4. Ad hoc Margins 
  • They are special margins blocked on specific securities depending on the nature of the security. 
  • It is SEBI prescribed and imposed on brokers with very large positions overall or in specific low-priced stocks that are illiquid.

 5. Mark-to-market Margin
  • Mark To Market (MTM) margin is the amount that a buyer/seller pays when the market price falls below/rises above the transaction price. 
  • It is calculated on the basis of the difference between a particular day’s closing price and the previous day’s closing price.
  • Mostly applicable to the F&O segment.

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