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    Margin Trade Example

    Uploaded by

    SEHAJDEEP SINGH ARORA
    This document provides an example of margin calculation for a long stock position. It includes: - An investor holding 100 shares at Rs. 800 per share, with 40% initial margin and 20% maintenance margin - The position would face a margin call if the stock price fell below Rs. 600 - If the position was squared off at Rs. 700, the investor's equity would fall to Rs. 19,480 due to brokerage fees and interest costs, representing a return of -39.13%

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd

    Margin Trade Example

    Uploaded by

    SEHAJDEEP SINGH ARORA
    74 views7 pages
    This document provides an example of margin calculation for a long stock position. It includes: - An investor holding 100 shares at Rs. 800 per share, with 40% initial margin and 20% maintenance margin - The position would face a margin call if the stock price fell below Rs. 600 - If the position was squared off at Rs. 700, the investor's equity would fall to Rs. 19,480 due to brokerage fees and interest costs, representing a return of -39.13%

    Original Description:

    this document contains an example of margin tading

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    This document provides an example of margin calculation for a long stock position. It includes: - An investor holding 100 shares at Rs. 800 per share, with 40% initial margin and 20% maintenance margin - The position would face a margin call if the stock price fell below Rs. 600 - If the position was squared off at Rs. 700, the investor's equity would fall to Rs. 19,480 due to brokerage fees and interest costs, representing a return of -39.13%

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    74 views7 pages

    Margin Trade Example

    Uploaded by

    SEHAJDEEP SINGH ARORA
    This document provides an example of margin calculation for a long stock position. It includes: - An investor holding 100 shares at Rs. 800 per share, with 40% initial margin and 20% maintenance margin - The position would face a margin call if the stock price fell below Rs. 600 - If the position was squared off at Rs. 700, the investor's equity would fall to Rs. 19,480 due to brokerage fees and interest costs, representing a return of -39.13%

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 7

    Margin Calculation Intraday - Example

    Long Shares 100


    Price per share 800
    Initial margin 40%
    Market Value of transaction at t=0 80,000.00
    Amount Borowed 48,000.00
    Investor's equity 32,000.00

    a) If Maintenance margin is 20% ; below what price will the investor get margin call?
    Maintenance Margin 20%
    Threshold price for Magin Call P = 600

    for unknown P

    b) Calculate change in investor's equity if position is squared off at Rs 700


    Brokerage 75bps on Ist leg of transaction
    Interest cost is 4% of the borrowed amount

    Square off price 700


    Investor's margin 31.43% still no margin call
    minimum margin level required 20%

    Investor's Equity at t=1 (excluding trading costs) 22,000.00


    Brokerage and Commission 600.00
    Interest cost 1,920.00
    Ending investor's equity (@t=1) 19,480.00
    Beginning Investor equity 32,000.00
    Return on Investment -39.13%

    %age fall in Price -0.125


    Leverage factor 2.50
    If no brokerage and interest cost then ROI -31.25% check it by substituting zero for brokerage and interest
    %Margin = (Inv Equity/Market Value of Stock)
    Investor's Equity = Market Value of Stock - Borrowed Amount
    0.2 = (P*100-48000)/(P*100) 600.00

    substituting zero for brokerage and interest


    We assume that as per terms and conditions, whenever
    an investor receives a margin call the investor has to
    deposit cash so that the investor's % margin is equal to
    Assumption the initial margin requirement

    Position Short Sell

    Number of Stocks 1500


    Price 250
    Initial Margin requirement 40%
    Maintenance Margin 20%

    a Cash Inflow at t=0 from shorting 375,000.00


    b Additional Amount to be deposited 150,000.00 525,000.00
    Investor's Equity `=a + b - Value of Shares owed
    % margin Investor's Equity/Value of Shares owed
    40.00% check

    if Price at t=1 225 favorable for short seller


    % margin increases to 55.56% no margin call

    Leverage factor 2.50


    % change in stock price (0.10) since it’s a short position, drop in sto
    Return on Investment (RoI) 25.00%
    Check RoI calculation
    Short covering at t=1 (@Rs 225) 337,500.00 Cash Outflow (buyback 1500 shares a
    Return on short sale `= (Value of Short Sale-Value of repurchase)/Initial M
    25.00%

    if Price at t=1 300


    % margin 16.67% investors gets margin call

    Additional Amount to be invested % margin = (Investor's Equity/Value o


    0.5 = (375000+150000-300*1500+X)
    X 150,000.00

    % equity after depositing additional margin amount 50.00% (Pl rectify it is 40%)

    Calculate RoI if the position is squared off at Rs 350


    Position squared off at t=1 (Buy back) 525,000.00
    Value of shares at t=0 375,000.00
    Initial margin paid 150,000.00
    RoI -100.00%
    We will not consider additional margin deposits for RoI calculation
    Also, any brokerage etc must be considered for RoI calc.
    Total value in margin account
    Shares owed
    /Value of Shares owed

    avorable for short seller


    no margin call Please note the excess amount (>initial margin) can be withdrawn

    since it’s a short position, drop in stock price will benefit the trader

    Cash Outflow (buyback 1500 shares at Rs 225 per share)


    t Sale-Value of repurchase)/Initial Margin Deposited
    [Margin deposited is the investment done by the investor and therefore considered as base]

    nvestors gets margin call

    % margin = (Investor's Equity/Value of Shares Owed)


    0.5 = (375000+150000-300*1500+X)/Value of shares owed I have erroneously calculated X considering 50% initial margin; it is 40%
    (please note: if the margin requirement by broker is to top-up the account only till maintenance margin, in that case replace 0.

    Pl rectify it is 40%)

    Check
    Leverage factor 2.5
    Change in price 40.00%
    Loss 100%
    tial margin; it is 40%
    n, in that case replace 0.5 by 0.2 in the above calc.)

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