How to understand the credit/debit on console ledger when trading futures and options?
The Console ledger contains entries for F&O obligation, margin debits, margin reversals, etc if you're trading F&O contracts. The F&O obligation amount includes the M2M amount payable or receivable by you.
Options trades are settled on the basis of net premium receivable or payable. However, when you trade futures contracts, the obligation amount is calculated at a marked-to-market (M2M) price. Exchanges at end of everyday mark all open futures position to the closing settlement price for the futures for that day and either credit or debit the money to client ledger. In other words:
- If you have taken a futures trade and not closed it during the day - The difference between your trade price and the closing settlement price will be settled to your account.
- If your futures position was carried forward from yesterday and you continue to hold it - The difference between the previous day's and today's closing price will be settled to your account.
- If your futures position was carried forward from yesterday and you square it off - The difference between the previous day's closing and your square-off price will be settled to your account.
The obligation amount is net of all charges for the day and can be verified on your contract note .
- The reason for doing M2M is because futures have unlimited risk and to ensure the person making losses doesn’t default, for open positions the losses are collected on the same day and credited it to the person making profits. The person who made the loss will now have to ensure that there is sufficient margin in the account to continue holding the position and hence ensuring there is no counter party risk.
- For short option positions, there is no M2M like futures, but margin required to hold short options keep going up as and when options go in the money (short options start losing money), thus in a way ensuring that the customer losing brings in more money to avoid the default risk
This means, while the trading platform shows only the overall P&L and current day's P&L , there will be multiple credits/debits on the Console ledger - one entry for every day you held the position. Learn more about the relation between daily credits/debits and the overall F&O profit in this TradingQ&A post .
Ledger entries for SPAN and Exposure margins are made and reversed on the basis of your open F&O positions.
The list of Console ledger entries and their meaning is maintained here .