Initial Margin
The deposit required before a derivative position can be opened, held as collateral against potential losses.
Formula
Initial Margin = SPAN Margin + Exposure Margin, computed by the clearing corporation for the portfolio
Unit
₹
In depth
Initial margin is a performance deposit, not a payment and not the maximum loss — losses beyond it are still owed, which is the fact that most distinguishes derivatives from buying shares. It is recalculated continuously and rises when volatility rises, so a position can demand more capital during exactly the sessions in which it is losing. SEBI requires the full margin to be collected upfront from clients, and shortfalls attract penalties on the broker that are passed on. Sizing a position by what the margin permits rather than by the exposure it creates is the single most common cause of large retail derivative losses.
Worked example
A Nifty futures lot with a contract value of ₹18,00,000 might require about ₹1,15,000 of initial margin, roughly 6.4%. A 6.4% adverse move wipes out the entire margin and leaves further losses still payable.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Initial Margin” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.