Why have I been charged margin penalty?

There are a few reasons you may have been charged a margin penalty:

• Your account value dropped below the maintenance margin requirement, which is a minimum amount you're required to keep in your account to maintain your leveraged position.
• You exceeded your borrowing limit, which is the maximum amount of money you're allowed to borrow from your broker to trade.
• You failed to meet a margin call, which is when your broker asks you to add more money to your account to maintain your margin requirements.

There are two types of penalties has been imposed:

1. Penalty for initial Margin: Initial margin is the minimum amount of money you're required to put up when opening a margin account. The penalty for not meeting the initial margin requirement can vary depending on the broker,

   For Ex: A Rs 10,000 deficit would result in a penalty on the shortfall amount if a trader had Rs 1 lakh in his account and the brokerage authorized him to open a position with a minimum margin (SPAN + Exposure) of 1.1 lakh.

2. Penalty for Non-Upfront Margin: Non-upfront margin is essentially when a trader borrows money from their broker to trade without putting up any collateral upfront. The penalty for non-upfront margin can be pretty steep.

   A deficiency for which a penalty may be levied develops when a client fails to timely fund such margin obligations. The money can be added up until T+1 day if a futures contract has marked-to-market (MTM) losses. A non-upfront margin shortage happens if the funds are not contributed, and a fine is assessed. Similar to upfront margins, non-upfront margins are added when exchanges need extra margins for stock F&O contracts in the last week before expiration because of volatility or physical delivery margins. The reporting margin due date is T+5 days, thus if a non-upfront margin penalty is imposed, the entry will show up on the fund's statement on the T+6th day.

Click here to know more about margin penalties.