NSE's Increased Margin Requirement Applicable from today
From today onward, Brokers have increased margin requirement for derivative segment.
Margins have been increased by as much as 35 - 40%.
It is going to hurt retail traders like me, trading for whom is primary source of income.
It took a little time to adjusting mindset to the news.
Talking in layman terms of the impact, it used to cost, ₹52000 for naked option will now cost 53000. Not much of a change.
For hedged positions, margin requirement for 1 lot used to be ₹34000, and it is now ₹52000. So naked option and hedged option cost the same to a seller. I don't understand how this is investor friendly. Naked options have the highest risk associated.
For Nifty, what was previously for ₹52000 will cost more than ₹73000. Same goes for hedged positions.
I do hope that when Nifty opens for weekly trading on 11 February, it will cover some of the losses occurring out of increased margin, as lot size is bigger in Nifty compared to bank nifty. It is too early to speculate as we don't know what the premiums can be before it starts to trade.
I used to trade with 48 to 50 lots of bank nifty and with new margins, that will decrease to 30. So it means I will have to readjust my strategies and shift to new ones.
For small traders it is more bad news as it will propel them towards option buying which will surely destroy their money as it is a dying asset.
Funny thing is, it will eat away profits from brokers too, but none protested against it to NSE.
As far as I am concerned, I will have to increase my profit margins to mitigate the negative effect, which means increase of risk by some degree.
I am also hoping, that it will increase the premiums in option contracts compared to pas premiums. I cannot be sure.
For now, I have taken a wide put calendar. 5 Lots. Will update the details later.