What is SPAN Margin? A Simple Guide for Indian Traders

SPAN margin is the core margin required to hold a derivatives position, calculated using a risk-based system called Standard Portfolio Analysis of Risk. It estimates the worst-case loss a position could face under various scenarios, and is the minimum collateral exchanges require.

SPAN margin is the main margin you post to hold a derivatives position. It is calculated by a risk model that simulates how your position could lose money.

Understanding it helps you plan the capital a trade needs. Here is how it works, why it matters, and what to watch for. You can see margin requirements on Stockk.

Key Takeaways

• SPAN margin is the core, risk-based margin.
• It estimates the worst-case loss of a position.
• It accounts for offsetting positions.
• It is the minimum collateral exchanges require.
• It rises in volatile markets.

How is SPAN margin calculated?

SPAN uses a risk model that simulates how a portfolio would perform under a range of price and volatility scenarios, then sets the margin to cover the largest plausible loss. It accounts for offsetting positions, so a hedged portfolio needs less margin than the sum of its parts. This makes SPAN risk-sensitive and portfolio-aware.

For example, you hold one lot of a stock future with a lot size of 500 shares at a price of ₹1,200, so the contract value is 500 × 1,200 = ₹6,00,000. The exchange runs its scenarios and finds the worst plausible one-day loss to be about 12 percent of that value, so SPAN margin is roughly ₹72,000. Notice that you control ₹6,00,000 of exposure with ₹72,000, which is the leverage that makes derivatives powerful and dangerous at the same time. The exact percentage varies by stock and by market conditions.

Why does SPAN margin matter?

SPAN margin is the foundation of derivatives risk management, ensuring traders post enough collateral to cover potential losses. Along with exposure margin, it determines the total capital needed to hold a position. Understanding SPAN helps you plan capital and avoid shortfalls.

SPAN vs exposure margin

Why SPAN changes

SPAN margin is not fixed. It updates with volatility and price scenarios, rising in turbulent markets and easing in calm ones. This is why the margin for the same position can change from day to day, and why traders keep spare capital to absorb increases.

When you are ready to trade futures and options, Stockk has you covered. Create a demat account in minutes and lean on the Knowledge Center as you build confidence.

Futures and Options are leveraged products and carry a high risk of loss that can be more than the money you put in. This article is only for learning and is not a recommendation to trade in derivatives.

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