Risk Management
Margin — Definition & Example
Collateral deposited with the broker to open and maintain a leveraged position.
Margin comes in two flavours: initial margin (the upfront collateral required to open a position) and maintenance margin (the minimum equity that must be maintained while the position is open). Falling below maintenance margin triggers a margin call — the broker either demands more collateral or liquidates the position automatically, often at the worst possible price during a downward spiral.
Example
Initial margin requirement is 50% on a ₹1,00,000 position → ₹50,000 of your money. Maintenance margin is 25%. If equity drops to ₹25,000 due to losses, you face a margin call. Failure to deposit more triggers forced liquidation.
Related
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