When you take a Futures position using collateral margin, your collateral/position can be liquidated in two scenarios:
- In case your position is making a loss under Mark to Market calculation, you need to add cash equal to or more than the amount of loss your position is making. Failing to add the funds your collateral/position will be liquidated.
- In case you don’t maintain sufficient margin in your account against your position, your collateral/position will be auto liquidated. Trading Margin in your account can drop due following:
- Due to increased haircuts on securities you have pledged (Example: Suppose you have pledged your Company A shares worth INR 1Lac. As per 15% haircut, you will get a margin of INR 85000. Using this margin, you take a Nifty futures position. If the haircut is increased to 20%, your margin benefit will be reduced to INR 80000. In case your Futures position requires a margin more than 80000, your collateral/position will be liquidated.)
- If the value of the pledged securities has gone down (Example: You hold Company A shares worth INR 1lac today and have got a margin of INR 85000 after 15% haircut. If your share value drops to INR 95000, your margin benefit will be reduced to INR 80750. In case your Futures position requires a margin more than 80750, your collateral/position will be liquidated.)
- If Exchange has increased SPAN Or Exposure margin on the futures/options contract