Owing to the popularity of Stock Trading, many are joining the bandwagon. While it is an excellent opportunity to earn higher returns, you cannot avoid the risks. The only way to make sustainable profits in the Stock Market is to keep learning. Before diving into the fad, consider your investment goals, and choose securities appropriately. While you are at it, brokers have their way of handling the risks.
They do this by collecting a margin against risky traders such as Futures and Options. Standard Portfolio Analysis of Risk or called SPAN, is used to measure the portfolio. Based on the results, the initial margin amount gets finalised. You can calculate the same by using a Margin calculator. Most stockbrokers have them available on their websites or apps too. Input the following components to arrive at the results:
The Stock Market involves many risky asset classes. However, some hold higher risks than others and offer maximum profit. They are used as underlying stocks in the investment portfolio to gain returns. As they are risky, they form the first element in the SPAN margin calculator. Some examples include Equities, and Futures and Options. F&O are the major derivatives that come at a fixed price.
This recognises the underlying stock. They are the letters associated with the securities for easy identification during trading. Experienced investors and traders use them to track their shares with ease. They also identify the stock movements quickly this way. For instance, when you select a symbol that indicates your stocks, such as Bank NIFTY, you arrive at results for the NIFTY SPAN margin. These are also called ticker symbols in Futures and Options Trading.
Now, enter the number of assets you wish to trade. It directly affects the margin collected. It differs between indexes and share types. Suppose you consider buying or selling 50 Futures. The calculator shows the applicable F&O. When you change this to other underlying assets like Equity, you get varied results involving different risks. The SPAN system considers your portfolio risks as you enter the variables for providing accurate results.
Buy or sell
When you buy, you pay the margin, but you are the collector as a seller. Since the dynamics change, the calculator considers this aspect and shows results accordingly. This causes a slight variation in the Equity Span Margin. The process works the same for Futures and Options, Currency, Commodity, etc.
Once added all the variables, you get the results showing the combined output. It displays the SPAN and Exposure margin with any additional margin applicable on the shares you wish to sell or buy. SPAN margin is the cushion to protect securities from volatility. Meanwhile, the Exposure margin adds to the safety, playing the role of a layer. These make up the total margin which gets calculated for detailed understanding.
The exchanges mandate these margins, which you pay before trading the risky assets. But before trading, ensure to open a Demat Account and Trading Account for smooth transactions.