While trading at PM Securities, you trading limits are set in line with margin regulations as stipulated from time to time by regulators like SEBI , Stock Exchanges, Clearing Corporations etc. Due to this the allowable trading limit on any given day is only permissible to the extent of available margins for a given client. Let us understand how this works:
There are 3 components to be understood here:
1) Available margin
2) Utilisation of margins
3) Net available margins and trading limits
1) Available Margins:
On any given trading day, the margins available for trading are derived at using the below formula:
Formula:
Cleared Fund Balance
(+) Value of pledged shares after haircut
(+) 80% of the value of shares sold on T-1 day*
(+) 80% of the value of shares sold during the trading day^
(+) Addition of funds by client on trading day (except uncleared cheques)
(-) Withdrawal of funds by client on trading day
(-) Margins blocked for un-settled equity trades
Explanation of terms used in the above formula:
Cleared Fund Balance: Cleared fund balance on a given day refers to such fund balance that is arrived at after adjusting for all un-settled trades. For eg, if a client sells shares worth Rs. 100 on Monday, his / her funds ledger balance on Tuesday shall be Rs. 100 however the cleared fund balance shall be Rs. 0 as the shares sold on Monday shall be settled on Wednesday until then this Rs. 100 is yet un-cleared. Only on Wednesday, will this balance of Rs. 100 get accounted for as cleared balance.
Value of Pledged Shares: The value of shares pledged by clients for margins after deducting the haircut rate as applicable by clearing corporation from time to time.
* 80% of the value of shares sold on T-1 day: If a client sells shares held as free balance in their PM Securities trading account on Monday, on the following trading day ie. Tuesday 80% of the value of such sold shares becomes available as margins. Here it is extremely important that the free balance of shares sold is held in PM Securities Demat account on the day that they are sold (ie. Monday) and not any other Demat.
^ 80% of the value of shares sold during the trading day: If a client sells such shares that are freely held in PM Securities demat account, immediately on selling the said shares 80% of the value of such sold shares shall become available as margins.
Addition of funds: If clients add funds during the trading day, the same shall be added to margins. Such addition is subject to the fact that the funds have been received by PM Securities (hence uncleared cheques are not included here). Addition of funds during the trading day via PM Securities payment gateway shall qualify for real-time margin benefit, any other offline method of fund addition shall take time to process and hence the addition of the same to the available margins shall be delayed.
Withdrawal of funds: If clients withdraw funds on a given trading day the same shall get reduced from available margins.
Margins used for un-settled equity trades: Margins blocked on T-1 day for all equity buy / sell trade is deducted from the available margins. This blocked amount will get released on the following day ie. on T+2. Eg. if the client buys shares worth Rs. 100 on Monday, for which he/she utilises Rs. 30 as margins, then on Tuesday the margin of Rs. 30 will remain blocked by the Exchange hence will also be reduced from clients available margins on Tuesday. Once, this trade is settled, on Wednesday (T+2) this margin shall be released and become available in clients available margin.
2) Utilisation of margins and trading limits:
Point 1, shows how the available margin is arrived at. The available margin as per point 1 can be used to take trades as long as enough margin is available for the given trade. The requirement of margins varies from each stock to another and each f&o instrument to another. The margins requirement for each instrument is computed as per below method:
- Equity segment
Applicable margin on any given stock is based on VAR+ELM+Additional Margins (Subject to a minimum of 25%).
- Derivatives segment
Applicable margin f&o positions is derived using SPAN Margins + Exposure Margins + Additional Margins. However, in case of derivatives it is important to understand that the derived margins are adjusted time and again based on portfolio risk. Eg. If client is long 1 Lot of NIFTY Futures contract the applicable margin shall be Rs. 1.5 lakhs but if the client hedges the position by buying PUT option(s) the overall portfolio risk reduces and hence the margin utilisation also reduces to Rs. 80,000 from Rs. 1.5 Lakhs. (Quoted figures are an example, not actual margins required for the said positions). Computation of portfolio risk in real-time is a complex mathematical model, which is calculated by the trading and clearing systems in real time. If you wish to understand the mathematical model of span refer this link.
3) Net available margin and trading limits:
Net available margin on a given trading day is arrived at by reducing utilised margins from available margins. And further trading limits available are based on the net available margin.
Formula:
Net available margin =
Available margins (as per point 1)
(-) Margins utilised on open f&o positions (computed as per point 2)
(-) Margins utilised on fresh equity trades done on the trading day (computed as per point 2)
(-) Real / Unreal loss in open F&O positions during the day.
In order to take any fresh trades, there must be enough net available margins, however for squaring-off open f&o positions or for selling free holdings held in PM Securities Demat account no margins are required. It is to be noted that the total margin exposure of all trades combined shall be capped at 95% of the net available margins to leave headroom for changes in margin rates and stock prices. For eg. if the clients net available margin is Rs. 100 he/she can only take trades until he/she has utilised Rs. 95 as margins the last Rs.5 shall not be allowed to be used as margins as they need to be maintained as buffer margins to account for the fact that stock prices and margin rates change during the trading day which can lead to margin shortages. When client attempts to utilise more than 95% of the net available margins the client shall get an alert stating "Client has reached final exposure warning limit".
How do I see the computed figures of all of the above?
During the trading hours:
All trading softwares offered by PM Securities show a representation of the above discussed formulae.
For the sake of simplicity, all of the above calculations get factored in the and are simply represented in two figures as highlighted below:
All you need to know is that a clients net used exposure can never exceed net allocated exposure. However if you need to further understand each component you can refer to the below figures:
1) Available Margins are shown in trading softwares as per the below:
Ledger Balance:
Cleared Fund Balance
(+) 80% of the value of shares sold on T-1 day
(-) Margins blocked for un-settled equity trades
* Please note that this is not your funds ledger balance, it is the margin ledger balance which is computed as per above formula.
Collateral:
Value of pledged shares after haircut
Credit For Sale:
80% of the value of shares sold during the trading day
Intraday Fund Transfers:
Addition of funds by client on trading day via Payment Gateway
2) Utilised Margin are shown in trading softwares as a single figure representing used margins on fresh equity trades taken on trade day + used margins on open F&O positions as "Gross used Exposure".
Complete breakdown of utilisation of margins, can further be viewed in the margin details report. Below is a representation of the same.
EOD projection for margins available for the next trading session:
At the end of each trading day, based on the available data we send an "Account Summary" email to all PM Securities clients. This represents the crux of your trading account, like you funds balances / holdings valuation etc. In this email we also include a section to indicate you what are going to be your net available margins on the following trading day. Below image shows the screenshot of this section:
The above section shows a projected figure to the start of next trading day, however during the trading day this will changed based on market movements, changes in margin rates and based on trades taken by you.
For raising any complaints / concerns raise a ticket