Module 4   Futures Trading (Video Series)Chapter 3

Margins

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3.1 – Why are Margins essential

Margins play a crucial role in futures trading, enabling one to leverage. Margins are the one that gives a ‘Futures Agreement’ the required financial twist (as compared to the spot market transaction). For this reason, understanding the margins and many facets of margins is extremely important.

We will learn in-depth about this concept in this video.

In the following video, we will learn about leverage and payoff.

We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.


Key takeaways from this chapter

  1. Zerodha’s margin calculator is a simple tool that lets you calculate the margin required for a futures contract.
  2. The margin calculator has many versatile features inbuilt.
  3. The margin calculator gives the split up between the SPAN and Exposure margin.
  4. At any given point, NSE ensures there are three contracts of the same underlying, which expire on three different (but consecutive) months.
  5. A trader can choose the contract of his choice based on the expiry date.
  6. The contract belonging to the current month is called ‘Current Month Contract’, the next month contract is called ‘Mid Month’, and the 3rd one is called “Far Month Contract.’
  7. The current month contract expires on every expiry, and a new far month contract is introduced. The mid-month contract would graduate to the current month contract in the process.
  8. A calendar spread is a trading technique that involves buying a particular month contract and selling another month contract simultaneously for the same underlying.
  9. When a calendar spread is initiated, the margins required are lower since the risk is drastically reduced.
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