A margin penalty is a fee imposed by exchanges when a trading account does not maintain the required margin. Clients must ensure their accounts have sufficient funds to meet these margin requirements to avoid penalties. This rule helps maintain market stability and proper risk management.

Upfront margin penalty is charged when there isn’t enough margin at the time of initiating a trade. For instance, if a trade requires ₹1.1 lakh as upfront margin (SPAN + Exposure) but the client has only ₹1 lakh in the account, the ₹10,000 shortfall attracts a penalty. 

From November 1st, penalties due to margin increases caused by changes in hedge positions or expiration of hedge legs can be passed on to the client.

Non-upfront margin penalties occur in the following instances after a trade is initiated, even when upfront requirements are met. 

• Increase in Margin for Positions entering Delivery Period: Clients holding positions that enter delivery period will attract increase of margin requirements as the position nears expiry.   
• Dishonoured Cheques:  If a client issues a cheque that is dishonoured, resulting in margin shortfall in the trading account, the margin shortfall penalty will be applied. 
• Change in Hedge Position or Expiry of Hedge Legs: Clients who hold hedge positions may face an increase in margin requirements if there is a change in the hedge structure or if one or more legs of the hedge expire, leading to unhedged exposure. Any resultant margin shortfall will attract penalties.

To avoid penalties, it’s important to maintain adequate funds, especially during volatile markets or when trading hedged positions. Monitor fund statements regularly to reconcile any penalties.

Learn more about margin penalties by visiting NSE and MCX.