Traders in trouble with 50 per cent cash margin

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Stock brokers demanding 50% margin from clients

MUMBAI: Many stock brokers have started demanding 50 per cent cash margin from traders trading in India's equity derivatives segment against the 50 per cent regulatory requirement. Traders say this has made it difficult for them to trade in the derivatives segment as the requirement of 50 per cent margin was sufficient to offset any volatility risk.

Recently, SEBI has tightened the margin criteria to increase the margin requirement. Of course, the stock market is constantly reaching new heights and hence brokers have become more cautious. Experts say brokers have started imposing one-sided penalties on traders who do not have a 50 per cent cash margin for trading in the F&O segment. Penalty involves 5% annual interest due to lack of cash margin.

"Retail participation in derivatives segment is growing rapidly," said an official of a Mumbai-based broking firm. We are pushing for a 20 per cent margin to keep retail traders away from derivatives trading as the market is reaching new heights and rapid fluctuations could increase debt. F&O trading is growing at an unprecedented rate with many new stocks being added to this segment by the National Stock Exchange.

According to the latest NSE data, retail investors have 3% of total Index Long Calls and Index Short Call Options, 3% and 31% of Index Long Put and Index Short Put Options positions, 9% of Index Long Futures and Index Short Positions: Percent and 5% of stock futures short positions.

Traders say customers will face difficulties in meeting margin commitments at the end of each quarter, as all clients will have to settle the position as per the existing rules of SEBI. If a trader has an option position based on cash, he may have to forcibly square his position.

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