Understanding Zerodha Margin Stocks & Indexes – Intraday, Futures and Options.

What is Margin Trading?

Margin trading allows traders to buy more stocks than money in the trading account. For buying shares, your stock broker(like ICICIDirect or Kotak Finance or Angel Broking) provides the margin and charges nominal interest on the borrowed money. In order to trade with a margin account, you need to place a request with your stock broker.

Zerodha Margin for Stocks Delivery.

A delivery trade means that you buy a stock today and sell it tomorrow(or any day after tomorrow).  Hence with delivery, stocks are typically purchased for a longer term.  Delivery trades are also known as “Cash and Carry” and “Normal” trades.

Zerodha does not provide any margin for delivery trades.

Hence if you have Rs 20,000 in your Zerodha trading account then you can buy stocks only worth Rs 20,000 for delivery based trade. If you need margin in delivery trades, we recommend you open trading account with Kotak Securities.

Zerodha Margin for Stocks Intraday

Intraday trading means buying and selling of stocks within the same trading day. Hence with Intraday, traders buy stocks to earn a profit by end of current trading day. It is worth noting that if you buy stock as “intraday” (and do not sell), they would automatically be sold by(also known as squared-off) by your stock broker before the end of trading day.

Intraday trades are also known as “Day Trades” or “MIS – Margin Intraday Square Off Trades”.

Zerodha offers a margin from 1x to 14x for intraday stock trades.

Since margin offered varies based on stock and keeps on changing periodically, Zerodha has developed Zerodha Margin Calculator using which we can find margin available for any stock.

Zerodha Open Account

 

For example: Below is a screenshot from Zerodha Margin Calculator for Infy(Infosys) and it shows that the MIS multiplier(or Intraday Margin) is 9x.

This means, if you have Rs 20,000 and wish you take an intraday trade on Infosys, you can buy stocks worth up-to Rs 180,000 via Zerodha. However remember, the trade would be squared off by end of the trading day (irrespective of whether you are in profit or loss).

If you need more margin for intraday trades, consider using cover orders. Cover orders are Zerodha proprietary and these orders should be placed with a compulsory stop loss. Since stop loss is needed, the risk in trade is reduced and hence Zerodha offers additional margin on these trades.

What is Futures Margin?

Futures are a type of derivatives. Derivatives are financial instruments which derive their value from an underlying asset stock (like Adani Ports or ITC) or an index like(NIFTY or BANKNIFTY) and futures always have an expiry date.

In the futures market, margin refers to the initial deposit made by the buyer & seller to enter futures contract. This margin is used for marking daily profits or losses to market (also called M2M – Mark to Market) and is a percentage of contract value.

Let us take an example, the current stock price of ITC is 281.05 and hence if you wish to buy 2400 stocks of ITC – the total investment would be Rs 6,74520 ( 280.05 * 2400 )

However, a trader can take the same position by paying only Rs 87498 until 31-Aug-2017(by purchasing a futures lot of ITC – as indicated in the screenshot).

Hence by paying Rs 87498, a trader can own profit & loss for 2400 ITC stocks(until 31-Aug-2017).

Zerodha Open Account

Let us discuss a few details about Margin, as indicated in screenshot above

Total Margin = Span Margin + Exposure Margin

Total Margin is the overall amount which we pay to execute the trade in futures.

Span Margin(also known as Maintainance margin) – The margin which needs to be blocked as per the rules of exchange (like NSE or BSE). SPAN margin requirement has to be met if the trader wishes to carry his position overnight/next day

Exposure Margin – Margin blocked for M2M losses.

It is worth noting that if the loss exceeds the exposure margin, the available margin in the account becomes negative.In this case, the trader should add more capital (margin) to the account by end of trading day else position will be squared off automatically by Zerodha.

Hence in case of ITC, if the loss exceeds Rs 33,738 the trader would need to add additional capital else Zerodha will automatically square off the position.

Zerodha Margin for Stocks & Index – Futures Delivery (NRML)

When you execute a futures trade until delivery, it means that you have until the expiry(last Thursday of the month) to square off your position. NRML Future are generally available for stocks & indexes for up-to three months from the current month.

Zerodha Open Account

You can use Zerodha Futures Margin Calculator to find the NRML margin.

For example, screenshot below highlights margin for taking NRML BANKNIFTY trade with an expiry of 31-Oct-2017.

Bank Nifty Margin

NRML futures provide margin and have an expiry date of last Thursday of the month. Hence, traders have few days on their hands even if the stock moves in opposite direction in beginning but ultimately moves in their direction by expiry date provided we maintain stipulated Exchange margins until expiry.

Zerodha Margin for Stocks & Index Futures Trades (Intraday – MIS)

If traders wish to take a directional position only for one day then Zerodha offers MIS – Future trades. Although these trades offer more margin, however, they are automatically squared off at 3:20 PM every day irrespective of profit or loss.

For equity & Index futures, MIS margin: 40% of NRML margin, all MIS positions squared off around 3.20pm.

Let us take a look at the Futures TCS screenshot:

MIS Margin requirements for a lot of TCS Future is only Rs 31210(which is only 40% of NRML margin of Rs 78025). MIS Future trades are normally used by experienced traders who wish to limit their profits and losses on a daily basis.

Zerodha Open Account

Zerodha Margin for Stocks & Index Options – Buying

When a trader buys any option(Stock or Index), Zerodha does not provide any leverage(margin). Hence, if you have Rs 20,000 in your trading account you can buy options only worth Rs 20,000.

Zerodha Margin for Stocks & Index Options – Selling

If you write options(or sell options) then Zerodha offers margin which is dependent upon aspects like underlying, expiry, volatility of the underlying stock. Please use Zerodha Span Calculator and select Product as Options to understand the margin provided for writing options.

Below screenshot illustrates that margin required for NIFTY 10000 Puts with an expiry of 28-Sep-2017 is Rs 58768.

Hence, you can sell a NIFTY 10000 Put with SEP-2017 expiry with a margin of Rs 56,768 and this trade would give you a premium of Rs 14,284.

Conclusion

We hope that now you have a good understanding about margins provided by Zerodha for various products like Stocks, Futures & Options. If you have any questions or suggestions, please leave them in the comments section below.