What is a Daily Margin Statement?
The stock market is a complex ecosystem. It offers a few asset classes that investors can browse and utilize their idle finances in stock trading to earn profits. All significant trading exchanges have the option of margin trading. It provides investors with additional capital.
The Securities and Exchange Board of India (SEBI) laid down a regulation that requires all brokerage firms to send their investors a daily margin statement. It comprises several financial parameters and other data that help investors understand how much they can invest daily.
However, many investors don’t know what a daily margin statement is and how to interpret what it includes. Let us discuss it in detail to help investors, especially newbies, understand what they receive from their stockbroker every evening.
What is a Margin Statement?
Investors can choose from a variety of categories and asset classes. An investor can either trade in the cash market or the derivatives market. The facility of margin investing is available on all major trading categories, giving traders the chance to use additional funds.
Also Read: How To Transfer Funds into your Trading Account?
Margin trading adds to the chances of earning profits or incurring losses. As most traders use margin and trade in different exchanges, it is difficult to keep a record of their funds.
Brokerage firms regularly send a report to the client. It increases accountability and helps consumers track their investments. This report is known as a daily margin statement.
What does the Margin Statement Include?
Regardless of which exchange you trade at on any business day, the brokerage firm will send you a statement before the day ends. This daily margin statement includes values from all of the exchanges. So, if you only trade in NSE, you will receive a daily margin statement for NSE, comprising data from equity cash and equity derivatives segments.
The format for the margin statement is prescribed by the Securities and Exchange Board of India. A standardized format across stockbrokers ensures readability and consistency.
The meaning of the different terms in the statement is as follows:
- Funds: This section has the closing balance that is available for you to use for investment. The data is till 5 PM on the trading day.
- Value of securities after haircut: The value of all your securities after an effective haircut is shown here. Besides, the section has the margin you are entitled to on pledging holdings. These securities are held by the brokerage firm. The amount of the haircut is more than or equal to the VAR margin rate. The broker sets this margin rate and adjusts it as per the broker’s risk management policy.
- Bank guarantees/FDR: The original margin provided after clearing a fixed deposit or bank guarantee is shown in this section. The daily margin statement generally gives the margin against currency segments or equity derivatives.
- Any other approved form of margin: If the investor trades in the currency derivatives or equity derivatives market, it is necessary to have a starting margin.
- Total upfront margin: This section shows the total amount after adding the exposure margin, SPAN margin, and investor’s option premium buy blocked for positions.
Also Read: Important Trading Update Margin & Trading Exposures
- MTM: This section shows any mark to market losses.
- Total requirement: Here, you can find the entire amount the exchange has blocked for you to take positions. There is a total requirement for every trading exchange and segment.
- Margin status: It provides the balance an investor can use on the next day for taking new positions.
The report informs the customer of the amount of margin that is no longer available for use. It gives an estimate of the account’s free margin that the client can use to open new positions without any penalty.
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Frequently Asked Questions
The SEBI has outlined a specific format for the statement. It includes columns for trade day, funds, the value of securities, bank guarantees, any other approved form of margins, the total margin available, total upfront margin, MTM, total requirement, shortfall/excess in regards to the requirement by exchange, margin status, etc.
The margin statement should be issued on the Trade day (T-day). Most stockbrokers allow you to download it from your console or trading terminal after the trade process is completed for the day. It is usually around 8:30 PM.
According to the regulations of the Securities and Exchange Board of India (SEBI), it is your brokerage firm that needs to send you a daily margin statement for NSE.
The value by which the market price of your pledged stock is minimized to determine the collateral value is known as the haircut.
If you are trading on all exchanges, you will receive a combined daily margin statement.
To calculate the daily margin, the stockbroker adds the total upfront margin and consolidated crystallized obligation.