What is a Margin Penalty?
As per exchange norms, whenever you enter or carry forward a position, you are required to maintain sufficient margins in your trading account. This applies to both equity and F&O trades and is mandated to ensure that any potential risk due to price volatility is covered. These margins can be in the form of cash or pledged securities.
As part of the Margin Reporting activity mandated by the exchanges, Geojit is required to intimate every detail regarding available and utilised margins in its clients' accounts. If sufficient margins are not maintained by a client on their open positions, the exchange levies a penalty on this shortfall.
At Geojit, our internal margin validation is done at the order level. So, an order is accepted and sent to the exchange only if sufficient margins for each individual position are maintained in the client's account.
In the event that market volatility increases, the exchange may increase the margin requirements of certain stocks (for both the equity and F&O segments). This might result in a margin shortfall.
For example, Mr Sunny has a fund balance of Rs. 2,10,000 in his trading account and wants to take a futures long position in Infosys which requires a margin of Rs. 2,00,000. When he places the order, Geojit validates the availability of sufficient margins in his account before executing it. Since he has the required margin, he is not charged a penalty.
Suppose that while his position is open, the exchange increases the margin requirement for this position to Rs. 2,50,000. In this case, Mr Sunny will have a margin shortfall of Rs. 40,000 (2,50,000 - 2,10,000) in his trading account. The exchange will levy a penalty on this shortage.