Intraday trading is the buying and selling of stocks on the same day with an aim to profit from their price movements. One key element that amplifies the potential gains and risks in intraday trading is leverage. Intraday leverage, also known as intraday exposure or intraday margin, refers to the additional capital provided by broking companies or stock brokers to day traders in the NSE market, allowing you to trade in larger volumes than your own capital would permit.
What are MIS and CO?
Margin Intraday Square-Off (MIS) - A product type that allows you to leverage your intraday positions with a higher margin, which must be squared off by the end of the trading day.
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Cover Order (CO) - Specialised order type with a built-in stop-loss, providing higher leverage while minimising risk.
How to find the current intraday leverages for MIS and CO?
To find out the leverage or margin provided for intraday trading using the MIS and CO product types, you can refer to the order window and the margin calculator.
What is the recent margin policy update on intraday trading?
The Securities and Exchange Board of India (SEBI) issued a circular on November 19, 2019. It stated that starting September 1, 2021, brokers cannot offer additional margin (such as 20x leverage) in any segment, including intraday trading.
Under the new regulations, the exchanges determine the margin requirements, which now remain the same for all brokers. This change ensures a level playing field and consistent margin norms across the industry.
For all intraday product types, namely MIS, CO, and Bracket Order (BO) trades, the leverage is now governed by the VAR+ELM margin calculation.
Understanding the important terms
Before we explore the latest intraday leverages, let's understand some factors:
- NRML (Normal Margin) - The initial margin requirement for carrying overnight positions.
- SPAN (Standard Portfolio Analysis of Risk) - A system for margins used by exchanges to calculate margin requirements based on the risk of the portfolio.
- Exposure - The additional margin required by the exchange to cover potential losses arising from adverse price movements.
- VaR (Value at Risk) - A statistical measure to estimate the maximum potential loss that a position may incur over a specified time horizon with a given confidence level.
- ELM (Extreme Loss Margin) - An additional margin charged by exchanges to provide a buffer against extreme market movements and unforeseen risks.
What is the intraday leverage currently offered for MIS?
*The volatility-based calculation takes into account variables such as VaR, ELM, and any additional ad hoc margins set by the exchange.
What is the intraday leverage for CO?
What are the benefits of using MIS and CO leverage?
Here are the specific advantages of using MIS and CO leverage:
- Enhanced trading potential - Higher leverages allow you to take larger positions with a smaller capital outlay, increasing the potential for higher returns.
- Risk management - CO leverages come with a built-in stop-loss, helping to minimise risk exposure.
- Flexibility - You can choose between MIS and CO leverages based on your risk appetite and trading strategy.
What factors influence the intraday leverage offered?
The intraday leverage offered is influenced by various factors, including:
- Market volatility - Higher market volatility may result in reduced leverage to manage risk.
- Stock liquidity - Stocks with higher liquidity generally have higher leverages.
- Regulatory guidelines - SEBI sets guidelines that brokerage firms must adhere to when offering leverages.
To wrap up
Finding the optimal intraday leverage, such as MIS or CO, is crucial to capitalise on short-term price fluctuations. Selecting the right leverage option can enhance trading potential and align with individual risk appetite, leading to a balanced approach that maximises profits while minimising risks.
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