What is Margin Call? How to Avoid Margin Call in Indian Trading
A margin call is a demand from your broker to deposit additional funds or collateral because the available margin in your trading account has fallen below the minimum required level. It typically happens when your F&O positions incur losses, reducing your account balance below the maintenance margin threshold.
Imagine you rented a shop and gave Rs.1 lakh as security deposit. The lease says the deposit must always be at least Rs.80,000. After some damages, the landlord says the deposit has come down to Rs.60,000 and asks you to top it up to Rs.80,000. That top-up demand is the equivalent of a margin call in trading.
When does a margin call happen?
A margin call is triggered when your account equity (cash + collateral value - unrealised losses) drops below the maintenance margin. This can happen due to adverse price movement on your positions, a reduction in the collateral value of pledged shares, or an increase in margin requirements by the exchange.
What happens if you do not meet the margin call?
| Stage | What Happens |
|---|---|
| Margin call issued | Broker notifies you to add funds by a deadline |
| Deadline passes, no funds | Broker can partially or fully square off your positions |
| Forced square-off | Positions closed at market price, which may be unfavourable |
| Deficit remains | If losses exceed margin, you owe the broker the difference |
How to avoid margin calls?
Keep a buffer above the minimum margin. If the required margin is Rs.1 lakh, keeping Rs.1.3 to Rs.1.5 lakh gives you cushion against normal adverse moves. Size your positions according to your capital. Do not use 100% of your available margin on a single trade. Set stop-losses on your F&O positions to limit losses before they trigger a margin call.
Monitor your margin utilisation at stockk.trade/products/fno.
F&O trading involves substantial risk. Losses can exceed deposited margin. This article is for educational purposes only.
Frequently Asked Questions
Can the broker square off my position without informing me?
If you do not meet the margin requirement by the deadline, the broker has the right to square off your positions to protect against further losses. Most brokers send notifications via SMS, email, or app alerts before taking action. However, in fast-moving markets, the broker may act quickly to limit their own risk exposure. Do not rely solely on notifications.
I received a margin call but the market reversed in my favour. Do I still need to add funds?
If the market moves in your favour and your margin is restored above the minimum level, the immediate margin call is effectively resolved. However, it is risky to depend on market reversals. Adding a buffer ensures you do not get forced out of a position at the worst possible time.
What is the difference between a margin call and a margin shortfall penalty?
A margin call is the demand to add funds. A margin shortfall penalty is the fine the exchange imposes on the broker (which the broker passes to you) for not maintaining required margins. The penalty is a percentage of the shortfall amount per day. Both margin calls and penalties can be avoided by maintaining adequate margin at all times.
Can I get a margin call on equity delivery positions?
Equity delivery positions require 100% payment, so margin calls are uncommon. However, if you use Margin Trading Facility (MTF) where the broker funds part of your purchase, you can receive margin calls if the stock value drops and your collateral falls below the required level.
How quickly do I need to respond to a margin call?
The timeline varies by broker but is typically the next morning before market open. Some brokers give until a specific intraday cut-off time. In extreme market conditions, the timeline can be shorter. Always respond as quickly as possible. Adding funds before the deadline protects your positions from forced closure.
Investments in securities market are subject to market risks. This article is for educational purposes only and does not constitute investment advice.
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