When you start trading in the security market for the first time, it becomes essential for you to understand the margin concept. When you start to trade, you are required to pay a specified amount to the broker, such an amount is called the initial margin. This way, security is provided to the broker if in any case, the buyer or seller makes a loss due to price fluctuations.
What is a Margin Calculator?
A margin calculator can help you specify the amount that you may be required to pay to the broker. It brings complex algorithms into use to calculate the margin amount. In several situations, you may have to suffer losses, but a margin calculator can help you calculate the maximum amount of loss that you might have to bear. A margin may have to be revised for different times of the day, so you may get different results for the trade.
Uses of a Margin Calculator
The amount of the initial margin will depend upon the situation to situation. For example, if the margin is 10% of the investment then if you are going to invest 15 lacs rupees you will have to deposit 15000 rupees as the initial margin. As already stated above margin amount depends upon transaction to transaction share to share or index to index. In all cases, you can make use of a margin calculator to know the amount.
Value at risk margin
A margin calculator also provides you with the value at risk margin. At this point, the calculator will take into account the recent moments in the price and trends and provide you with the risk of loss in the value that you may have to face. Securities are listed groups such as Group 1, group 2, or Group 3. The margin risk may vary depending from one group to another.
Extreme loss margin
Extreme loss margin or ELM, in this case, there can be two possibilities, either the loss amount will be 5 percent of the amount or it may be equal to the 1.5 times standard deviation of daily logarithmic returns security price, such security price will be based on the price of last six months. The result will be applied the next month.
Exposure margin
A broker may block an amount to have security against MTM losses, such an amount blocked is known as the exposure margin. The SPAN and exposure margins are specified by exchanges. Whenever a trader may do a future trade or option sell trade, it will be essential to follow the initial margin terms and conditions. A margin calculator can help in calculating the total margin amount that will be required to be paid.
Option premium
A margin calculator can also help in calculating the option premium. Option margin is required to pay while trading in options. These are a few types of margins that a margin calculator can help you to find. You can bring a 5paisa margin calculator in use to find the margin amount in different scenarios.
See More: Best Financial Calculators
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