The exchange requires a minimum margin to be collected from the client for each trade. The specific margins charged by the exchange can vary depending on the trading segment. The different types of margins that need to be collected as per exchange guidelines are as follows:

For Equity

Var + ELM (Upfront margin): The upfront margin is the minimum amount required to initiate a trade. In the equity segment, the exchange mandates (WEB) the collection of at least 20% of the traded value, or Value at Risk (VaR) + Extreme Loss Margin (ELM), whichever is higher, from the client for both delivery and intraday trades. However, Zerodha collects the full value of the trade for delivery trades, also known as Cash and Carry (CNC) trades. For intraday trades, Zerodha offers up to 5 times leverage (equivalent to 20% of the traded value) through the use of Margin Intraday Square off (MIS) and Cover Order (CO) for equities. To learn more about VaR and ELM, see What is Value at Risk (VAR), Extreme Loss Margin (ELM), and Adhoc margins?

Adhoc margins: Adhoc margins are additional margins that exchanges can impose as needed (ad hoc basis). Adhoc margins may be levied when the exchange identifies an increased risk due to potential defaults, market volatility, or other conditions that might result in greater losses. These margins are over and above the usual required margins, safeguarding the markets and its participants against unforeseen risks.

Mark-to-Market (MTM) loss margins: Exchange requires MTM loss margins to be collected in case of intraday losses.

Why does Zerodha collect the full amount instead of 20% of VaR + ELM for equity delivery trades?

Zerodha collects the full amount for equity delivery trades rather than 20% of VaR + ELM because when stocks are purchased using the CNC product type, the trader intends to take delivery of them. This requires full payment as it is not a leveraged trade.

The next trading day following the purchase, Zerodha, as the broker, is obligated to pay this money to the clearing corporation to secure the stocks for delivery. Hence, Zerodha collects a 100% upfront margin for CNC trades.

However, stocks can be bought for delivery with lesser margins using the Margin Trading Facility (MTF). Zerodha is working on this and will be available soon.

For Derivatives

SPAN and Exposure (Upfront margin)

The exchange mandates the collection of SPAN and Exposure margins as upfront margins in the derivatives or F&O segment. However, for option buying, only the premium is required to be collected. The margin requirement for both intraday (MIS) and carry-forward (NRML) positions is the same because derivatives are inherently leveraged. The margin that is blocked in a client’s trading account for derivatives positions is also called the Initial Margin and is the sum of these two components, i.e., SPAN and Exposure margins.  To learn more, see What is SPAN and exposure margin?

SPAN and Exposure margins will be blocked in the client's trading account for the duration of their futures trade. The initial margin value keeps changing daily due to its dependency on the futures price. Even though the lot size is constant, changes in the futures price lead to changes in the margin requirements.

There are a few reasons that could lead to an increase in the SPAN and Exposure margins:

• Exiting hedged positions: There will be a margin shortfall if the client exits a position that provides the margin benefit in a hedged trade, thereby increasing the required margin. To learn more, see Can exiting one leg of a hedged position lead to a peak margin shortfall?
• Expiry of one of the hedged positions: The required margin may increase if one or more contracts in the hedged portfolio expire. This is because the hedge may break, causing the margin benefit to be lost, resulting in a margin shortfall.
• Change in overall portfolio margin: Buying or selling one or more positions might lead to a change in overall portfolio margins, resulting in a margin shortfall.
• Volatility: The minimum margin required to hold a position might increase because of intraday volatility, leading to a margin shortfall.

Mark-to-market margin (MTM margin) for Futures

Mark-to-market (MTM) in futures involves the daily revaluation of open contracts to calculate profit or loss based on price changes in the underlying asset. It requires comparing the contract's entry price with the current market price and adjusting the trader's account accordingly. To facilitate this settlement, traders must maintain additional funds, i.e., the MTM margin, in their trading account. This ensures that there are sufficient funds in their trading account to cover potential losses from open positions. To learn more, see What is Mark to Market (MTM)?

Physical delivery margins

Futures and Options (F&O) positions may require the delivery of the actual shares upon expiry. When buying option contracts, there's no need to block SPAN and exposure margin in the account, as the margin requirement and risk are limited to the option's value.

However, due to new physical delivery rules, in-the-money (ITM) options now result in the delivery of the underlying shares. The exchange imposes physical delivery margins on ITM options starting four days before expiration. These margins are calculated as a percentage of the applicable margins (VAR + ELM + Adhoc) of the underlying stock.

Day (BOD-Beginning of the day)	Margins applicable
E-4 Day (Friday)	10% of VaR + ELM +Adhoc margins
E-3 Day (Monday)	25% of VaR + ELM +Adhoc margins
E-2 Day (Tuesday)	45% of VaR + ELM +Adhoc margins
E-1 Day (Wednesday)	25% of the contract value
Expiry Day (Thursday)	50% of the contract value

To learn more, see What is Zerodha's policy on the physical settlement of equity derivatives on expiry?

Commodity segment (MCX)

Initial Margin (Upfront Margin)

The upfront initial margin includes the net buy premium and the Extreme Loss Margin (ELM), both of which must be collected in advance, i.e., upfront. Therefore, when reporting margins, a client's upfront initial margin is the sum of the contract level initial margin, net buy premium, and ELM. It's mandatory for brokers to collect these initial margins from their clients before any trading activity takes place.

There are a few reasons that could lead to an increase in the upfront margins:

• Exiting hedged positions: There will be a margin shortfall if the client exits a position that provides the margin benefit in a hedged trade, thereby increasing the required margin. To learn more, see Can exiting one leg of a hedged position lead to a peak margin shortfall?
• Expiry of one of the hedged positions: The required margin may increase if one or more contracts in the hedged portfolio expire. This is because the hedge may break, causing the margin benefit to be lost, resulting in a margin shortfall.
• Change in overall portfolio margin: Buying or selling one or more positions might lead to a change in overall portfolio margins, resulting in a margin shortfall.

Volatility: The minimum margin required to hold a position might increase because of intraday volatility, leading to a margin shortfall.

Other Margins (Non-upfront margin)

Non-upfront margin refers to the margins that can be collected after taking a trade. Margins not included in the Initial Margin are classified as Other Margins . This category comprises Additional Margin, Special Margin, Tender Margin, Delivery Margin, and Concentration Margin, all of which the broker must collect from the clients. As Other Margin is not collected upfront, any shortfall in it can be collected until the next day (t+1 Day).

MTM margin (Non-upfront margin)

For futures contracts, the profit or loss calculated at the end of each trading day, known as the mark-to-market margin, forms part of the margin reporting and must be collected from the clients. In the case of options, the Exercise/Assignment Obligation at the contract's expiry is combined with the Mark to Market requirement for margin purposes. To learn more about MTM, see What is Mark to Market (MTM)?