The quantum of margin levied by Exchange, and hence, Kotak Securities, depends on various factors affecting the market price of the stock, most important of which is volatility.
Value at Risk (VAR) is a margin intended to cover the largest loss that can be encountered on 99% of the days (99% Value at Risk). It is required to cover up for the losses arising due to uncertain market conditions. It is usually higher on high volatility days.
VaR is a technique used to estimate the probability of loss of value of a portfolio or a group of stocks, based on the statistical analysis of historical price trends and volatilities.
While historical volatility tells us how the security price moved in the past, VaR answers the question, “How much is it likely to move over next one day?"
It is known as VAR (Value at Risk) in Cash Segment and SPAN (Standard Portfolio Analysis of Risk) in the Derivatives Segment.
There are two risk scenarios which are used to determine SPAN margins:
The underlying 'price scan range' or probable price change over a one-day period
The underlying price 'volatility scan range' or probable volatility change of the underlying over a one-day period.
Increase in Price Scan Range means that the margin fluctuations will be higher during extreme volatility.
To know the current margins applicable in MIS / CO orders, click here.