November 25, 2025
2 mins read
You need to know about the different types of margins if you want to trade stocks with leverage. A margin is like a loan from your broker that lets you buy more stocks than you could with just the money you have.
This can help you make more money, but it also means you have to take more risks. There are many kinds of margins that apply to different situations, such as daily changes to your trades and rules for keeping positions overnight.
Many brokers in India offer two main types of accounts that let you trade on margin.
Cash Accounts with a Margin: This kind of account lets you borrow a little bit of money against the cash and securities you already own. Your broker sets a margin limit based on how much your portfolio is worth. This is a good option for traders who want to use some leverage but don't want to take on too much risk.
Accounts with a margin: You can borrow a lot more money with a full margin account, which lets you take on much bigger positions. This account is for traders who are more experienced and active and are okay with the higher risks that come with having more leverage. They should also be ready for calls on their margins.
Below are the different kinds of margins you will find in the stock market.
Variation Margin: This is a change that happens to your account every day. If you make money on your open futures or options position during the day, that money goes into your margin account. If it loses money, the amount is taken away.
Gross Exposure Margin: The gross exposure margin is based on the total value of all your open positions across all contracts. Brokers use it as a risk management tool to make sure that a trader's overall exposure to the market stays within safe limits.
Peak Margin: This is the margin that is needed at any point during a trading day. According to SEBI rules, brokers must take at least four pictures of a client's positions to find the peak margin. This keeps traders from taking on too much risk during the day.
Delivery Margin: If you buy shares with the intention of holding them overnight and having them sent to your demat account, a delivery margin is blocked. This makes sure you have enough money to pay for the shares in full when they are settled.
Extreme Loss Margin (ELM) is an extra margin that is added to the original margin. The goal is to keep the broker from losing money during sudden, extreme changes in the market.
VAR: Value At Risk Margin is a number that is calculated using statistics to show the many likely losses a stock could face in one day under normal market conditions. It is collected to cover the losses that are very likely to happen.
Margin for Premium: This only applies to options trading. When you sell an option, you get a premium, but the exchange also takes a premium margin from your account to cover the risk you are taking on as the seller.
Mark-to-Market Margin: This is how profits and losses are settled every day. It's very similar to the variation margin in that it makes sure that your account balance always shows the current market value of your open positions.
Exposure Margin: This is an extra margin that is added to the main margin (SPAN or VAR). It is meant to cover any risks that the main margin calculation might not show, like the risk of concentrating too much on one stock.
Using margin can greatly increase your returns, but it also comes with a lot of risks. Before you start trading on margin, you need to know both sides of the story. This is because margin trading can make both your potential gains and losses bigger.
More Buying Power: Margin lets you control a bigger position than you could with just your own money.
Possibility of Higher Profits: Since you are trading with more money, even small price changes can lead to bigger gains.
Flexibility: You can take advantage of trading opportunities without having to put in more money.
Losses: Losses are bigger, just like profits are. You could lose more than what you put in.
Risk of a Call on Margin: If your trade goes against you, your broker will send you a "margin call," which means you need to put in more money or sell your securities to make up for the loss.
Interest Costs: Keep in mind that a margin is a loan. When you borrow money, you have to pay interest on it, which can cut into your profits.
It's not just for expert traders to know about the different types of margins; it's important for anyone who uses leverage to know about them. Knowing how each margin works helps you manage your risk well and stay away from surprises like a margin call.
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Margin classification categorizes the types of margins required by brokers, such as initial, maintenance, and variation margins, based on trading activities and regulatory requirements.
Margin in a trading account is the borrowed funds from a broker that allow an investor to buy securities, leveraging their investment.
Yes, margin trading is risky as it amplifies both potential gains and losses, and can result in significant debt if investments decline
Gross margin is the difference between sales and the cost of goods sold, while net margin is the profit after all expenses have been deducted from sales.
Yes, different asset classes like stocks, futures, and options have specific margin requirements set by brokers and regulatory authorities to manage risk.
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