What is the 50% Cash-Margin Rule in Futures and Options?

• The exchange has revised the rules for the fulfillment of the total margin required for all trades in the F&O segment. From now on, the brokers have to ensure that a minimum of 50% of the total margin required is in the form of cash for all the positions in the F&O segment.

• Following this development, if you are trading with Kotak Securities, you need not worry about maintaining a cash balance of minimum 50% of the total margin required, as it’ll be handled by Kotak Securities. The rule of 50% cash margin will not be applicable to any Kotak Securities clients. The journey for placing orders in the F&O segment will be unaffected.

• The new rules implemented by the exchange do not affect any Kotak Securities client. The 50% cash has to be maintained by the broker and not the client. Therefore, the clients need not worry about maintaining minimum 50% cash of the total margin required for the positions. They can easily create positions in F&O by using the collateral limits.

Note:

The limits created through the pledge of collateral will be subject to interest charges.

Here’s the revised criteria and Interest Charges on Collateral Margin in the F&O segment.

Example: Let us assume that you want to sell a 17,500 Nifty Call Option, and the margin required to sell this option is approximately Rs 80,000. If you have no funds in your account but have created a limit of Rs 80,000 by pledging your collateral, you can execute this trade using those limits. You do not need to worry about bringing in a minimum 50% cash balance of the total margin required (i.e., Rs 40,000) to execute this trade.

If you square off this trade on the same day, no interest will be charged. However, if you carry forward this trade, interest at a rate of 0.049% per day (i.e., 17.88% p.a.) will be charged only on the collateral margin used. Therefore, the interest charged per day will be approximately Rs 19.60 (Rs 40,000 * 0.049%).

Let us understand the benefits:

• You will not miss any trading opportunity even if you are falling short of funds. You can use your collateral limits by simply pledging your shares. Click here to check the collateral margin available on different stocks.

• The surplus cash balance available in the account can be withdrawn and used by you as per your needs. You need not constantly monitor your cash balance and worry about bringing in funds to create or maintain positions.

• Your trading journey will be unaffected.

Click here to know more about stock as margin.

Let us assume that all the positions are carry forward positions and you are mapped under the Trade Free Youth, Trade Free Plan or Trade Free Pro.

• Scenario 1: 50% Cash - 50% Collateral

The margin required for selling a Nifty Call Option is Rs 1,00,000. You have Rs 50,000 cash and Rs 50,000 collateral limit in your account, and you create a position for 30 days using these funds and limits. Since the cash and collateral margin are in the ratio of 50-50, you need not pay any interest.

• Scenario 2: 30% Cash - 70% Collateral

The margin required for selling a Nifty Call Option is Rs 1,00,000. You have Rs 30,000 cash and Rs 70,000 collateral limit in your account, and you create a position for 30 days using these funds and limits. You will have to pay interest on only the differential collateral limits used above 50% of the total margin required. You will have to pay interest only on Rs 20,000 (70,000 – 50,000) and not on Rs 70,000. Therefore, the interest charged will be only Rs. 294/- (20,000 * 17.88% (30/365)).

• Scenario 3: 70% Cash - 30% Collateral

The margin required for selling a Nifty Call Option is Rs 1,00,000. You have Rs 70,000 cash and Rs 30,000 collateral limit in your account and you create a position for 30 days using these funds and limits. Since you have allocated cash (i.e., Rs 70,000), which is more than 50% of the total margin required, you will not be charged any interest.