Margin Call
The message every leveraged trader dreads. On NSE it arrives not when you are wiped out, but the first evening the deposit is one rupee short.
In short: a margin call is a broker’s demand that a client restore the margin on open positions after the account has fallen below the requirement. It is triggered by daily mark-to-market losses, by a rise in the margin requirement itself, or by a fall in the value of pledged collateral. If it is not met in time the broker may close positions, and SEBI’s short-collection rules add a penalty.
The intuition
Margin is the clearing corporation’s guarantee that tomorrow’s losses can be paid. Each evening the position is settled and the deposit is re-measured against the new requirement. If the deposit is now smaller than the requirement, the guarantee has a hole in it, and the chain of obligations runs the other way: the clearing corporation requires the broker to collect, and the broker requires the client. That demand is the margin call.
Three things can open the hole, and they often arrive together. A loss on the position drains the ledger. A rise in volatility widens the SPAN scenarios and raises the requirement. A fall in the shares pledged as collateral cuts the collateral value. In a sharp sell-off all three happen on the same day, which is why margin calls cluster on the worst sessions.
Formula
Shortfall = total margin requirement − (cash + collateral value after haircut + settled MTM credits)
A margin call is raised when the shortfall is positive. Under SEBI’s short-collection rules, the penalty on the broker is 0.5% of the shortfall per day when it is below ₹1 lakh and below 10% of the requirement, and 1% per day otherwise, rising to 5% for persistent shortfalls (SEBI circular CIR/DNPD/7/2011); brokers pass this to the client.
Worked example (illustrative numbers)
Suppose NIFTY is at 24,000 and a trader is short one lot (65 units) of the 23,800 put written for ₹215 with 30 days to expiry, posting a margin requirement of ₹1,20,000 from ₹1,30,000 in the account. A week later Nifty falls 2% to 23,520 and implied volatility rises from 13% to 19%.
| Item | At entry | After the fall |
|---|---|---|
| 23,800 put price | ₹215 | about ₹545 |
| Position MTM | 0 | −₹21,450 |
| Margin requirement | ₹1,20,000 | ₹1,55,000 (higher IV, closer to strike) |
| Available margin | ₹1,30,000 | ₹1,30,000 − ₹21,450 loss = ₹1,08,550 |
| Shortfall | none | about ₹46,000 |
The option is still out of the money, the trader has not been assigned anything, and the call is already for a third of the original deposit. Half the shortfall is the price move; half is the requirement rising on volatility. The trader must add funds, close the put at a ₹21,450 loss, or buy a lower put to convert the position into a spread and cut the requirement.
Why it matters to an options trader
- Writers get called before they are wrong. The put above never went in the money; the call came from volatility and proximity.
- Forced closing is the real loss. A position squared off by the broker on the worst day realises the loss at the worst price; many writers who were eventually right were closed out first.
- Spreads are the cheapest fix. Buying a further-OTM option converts an undefined-risk position into a defined one and cuts the SPAN requirement, often by more than the cost of the hedge.
- Collateral is not cash. Pledged shares carry a haircut that widens on volatile days; a call can arrive from the collateral side alone.
Common mistakes
- Funding to the exact requirement. The first adverse evening creates a shortfall.
- Meeting the call by adding more of the same position. Averaging into a losing short option raises the requirement further.
- Ignoring the broker’s own thresholds. Many brokers square off at a set shortfall percentage, often earlier than the exchange penalty rules.
- Assuming an in-the-money long leg covers it. Unrealised option gains count only as the SPAN offset they provide, not as cash, until the leg is sold.
Indian-market specifics
- Margins must be collected upfront under SEBI’s peak-margin framework (circular of July 2020, 100% from 1 September 2021); a shortfall at the daily check is reported to the clearing corporation.
- Short-collection penalties follow SEBI circular CIR/DNPD/7/2011: 0.5% or 1% of the shortfall per day depending on size, 5% per day after three consecutive days or more than five days in a month. Brokers pass these to clients under their account terms.
- Daily MTM on futures is settled on T+1 through NSE Clearing; the client ledger reflects it the same evening, so a margin call is usually raised that evening for funding before the next session.
- Physical settlement of stock options adds delivery margins in expiry week, rising day by day from E-4 to expiry, which is a common source of unexpected calls on in-the-money stock positions.
FAQ
What triggers a margin call on NSE?
MTM loss, a higher requirement, or a collateral haircut, often together.
How long do I have to meet a margin call?
Usually by the next session, per the broker’s policy.
Can a margin call happen without the market moving against me?
Yes: higher IV, lower collateral value, or delivery margins.
What is the penalty for a margin shortfall?
0.5% to 1% of the shortfall per day, 5% if persistent.
Know the requirement before the market opens
The SPAN and exposure margin calculator shows what a short position needs today. In the app, the Option Chain page shows implied volatility by strike, so you can see the input that will raise tomorrow’s requirement.
Related terms
- Maintenance Margin, the level whose breach triggers the call
- Mark to Market, the daily debit
- Pledge Margin, collateral and haircuts
- Delivery Margin, the expiry-week source of calls on stock options