New peak margins rule from today; Anil Singhvi tells traders to exercise caution, explains impact
Peak Margin rules come into force from today. What are these rules and how are they going to impact the trading volumes on markets? Zee Business Managing Editor Anil Singhvi explains this to the channel viewers and cuts through the confusion
Peak Margin rules come into force from today. What are these rules and how are they going to impact the trading volumes on markets? Zee Business Managing Editor Anil Singhvi explains this to the channel viewers and cuts through the confusion.
Under the new rules, it will be seen what the highest exposure of a broker is in the market at any point in time. Based on this, a margin will be applied, the Market Guru said. The brokers are required to take that margin from their clients.
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Explanation with Example
The brokers have been giving limits to their clients to trade from their side, till now. The broker keeps his deposits in the exchange and gives the clients limits to trade. The limit was discretionary, and the broker decided the limit.
That is to change now with the peak margin system on the per client basis.
In case at any time a trader trades in two lots. If at any other time he trades for 5 lots, then the margin will be counted on 5 lots. The broker is now required to get 25 per cent of that margin from clients, the Market Guru said. It is less now and is likely to increase, going forward.
Till now, the traders were able to trade with less margin as the peak margin was considered only ones.
He said that till now, your broker was allowed to finance your margins.
The reason behind this move is that the exchange now does not want a situation of overtrading and over margining, Singhvi said.
The broker will now limit his margins over the margins that investors give them. This means that the exposure of a trader in the market will now be limited to a certain extent.
He expected volumes of futures and option markets to come down today. He said that it may not have a material impact on the markets. However, there could be some impact on the price discovery front.
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Anil Singhvi’s advice to traders/investors on peak margins
The Managing Editor has advised traders to first completely understand the new rules on the peak margins. The adjustment to the new system is required before the traders embark, he further said.
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