When investors trade in the share market, they need to have an amount of money in their accounts to cover losses on their investments. This amount of money is called margin and is most commonly used while trading intraday (day trading).
As the market is highly volatile and the positions can fluctuate in their value, it is fairly difficult to estimate a margin amount which will be sufficient to cover all the losses if the market presents its worst-case scenario.
This is where the SPAN Margin Calculator comes in.
What is SPAN Margin calculator?
SPAN in the share market world, stands for Standardized Portfolio Analysis of Risk. It is a system used by most of the stock exchanges to calculate the amount of money (margin) an investor has to keep in the account to cover potential losses.
The SPAN system is based on complicated algorithms and machine learning techniques and calculates margin based on an assessment of all the markets globally. The SPAN margin calculator can calculate the margin for every single position, and the excess margin is shifted towards new positions which are short of the margin money.
Steps to calculate margin using a SPAN margin calculator
One can follow the below steps to calculate margin by using a SPAN margin calculator:
Choose the Exchange in which you want to trade. It can be NSE or BSE.
Choose the product you want to calculate the margin of. It can be futures or options.
You have to choose the ticker symbol of the company you want to trade futures or options of.
Next, you have to select the lot size which you want to buy or sell.
Tick the option of buy, if you want to buy or sell if you are going to sell.
When you enter all of this information, you will be provided with the amount of margin you will have to keep in your account. This amount is calculated keeping in mind the worst case scenario the market can present. Span margins for big contracts in India are:
NIFTY SPAN Margin – 5%
USDINR SPAN Margin – 1%
BANK NIFTY SPAN Margin – 5%
Gold SPAN Margin – 5%
The SPAN margin is mostly different for different security as the nature of risk differs with every security. For example, it is possible that the SPAN margin requirement for a single stock is higher than that of an index since the risk of index/portfolio is higher when trading in individual stocks.
Moreover, the SPAN margin calculator determines the margin based on the historic volatility of the underlying asset. It means that, if a security has lower volatility, the SPAN margin calculator will calculate a lower margin and if the security has a higher volatility, the margin calculated will be higher.