What is SPAN Margin? How It Is Calculated for F&O in India
SPAN margin, or Standard Portfolio Analysis of Risk margin, is the minimum margin the exchange requires you to hold for any F&O position. It is calculated using a risk model that estimates the worst-case loss your position could incur in a single day under various market scenarios.
SPAN was originally developed by the Chicago Mercantile Exchange and is used by NSE and BSE in India for computing F&O margins. The model runs multiple what-if scenarios, varying stock price and volatility, and picks the scenario that produces the worst loss. That worst loss amount is your SPAN margin requirement.
How does SPAN calculate the margin?
SPAN considers 16 different scenarios combining price movement and volatility changes. For each scenario, it calculates the potential loss on your position. The highest loss across all scenarios becomes the SPAN margin. This approach captures risk more accurately than a simple percentage-based margin.
SPAN also provides a benefit for hedged positions. If you hold both a long and short position in the same underlying, the combined risk is lower than individual risks. SPAN recognises this and reduces the margin accordingly. This is called spread benefit.
What is the relationship between SPAN and total margin?
Total Initial Margin = SPAN Margin + Exposure Margin
SPAN covers the estimated worst-case single-day loss. Exposure margin is an additional buffer for risks that SPAN does not capture. Together, they form the total margin you need to hold for any F&O position.
F&O trading involves substantial risk. This article is for educational purposes only.
Frequently Asked Questions
Does SPAN margin change every day?
Yes. SPAN margin is recalculated multiple times a day by the exchange based on current prices and volatility. As volatility increases, SPAN margin increases. As volatility decreases, it reduces. This is why you might see your margin requirement change even without taking new positions.
Can I check the SPAN margin for a position before taking it?
Yes. Most broker platforms have a margin calculator that shows the SPAN and exposure margin required before you place an order. NSE's website also provides a SPAN margin calculator. Always check the margin requirement before entering an F&O position.
Why is SPAN margin different for different stocks?
Stocks with higher volatility require higher SPAN margins because the potential single-day loss is larger. A highly volatile stock might need 20 to 25% margin while a stable large-cap stock might need 12 to 15%. The SPAN model adjusts automatically based on each stock's historical and implied volatility.
What is SPAN spread benefit?
If you hold offsetting positions, such as a long future and a short call on the same stock, the combined risk is lower than the sum of individual risks. SPAN calculates the net risk and provides a margin offset. This is why hedged positions require less margin than naked positions.
Is SPAN margin the only margin I need for F&O?
No. You need SPAN margin plus exposure margin as the initial requirement. Additionally, mark-to-market (MTM) losses are settled daily and debited from your account. If your position incurs losses, you may need to add more funds even if your initial margin was sufficient when the position was opened.
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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