India’s regulatory body, SEBI (Securities and Exchange Board of India) has reduced the peak margin for intraday traders from 75% to 50%. From 1st September 2021, intraday traders are trading with the new rule. Under the rule, stockbrokers have to collect a minimum margin on leverage-based trade upfront as against the earlier practice of collecting margin at the end of the day. The Association of National Exchanges Members of India (ANMI), a stockbroker association has mentioned that reduced peak margin would be in favour of individual investors, trading members and helpful in the growth in the capital market.
What is peak margin?
Recently, SEBI cleared the concept of “Peak Margin”. The concept of peak margin has changed for reducing the risk of additional leverage provided by stockbrokers to its clients.
It is the margin that an investor needs to maintain with his stockbroker for any trade.
Earlier it was calculated at the end of the day. But now It will be calculated based on the maximum value of positions taken by him during the day.
What is Intraday trading?
Intraday trading meaning is to buy or sell shares and stocks on the same trading day before the market closes. It is also known as Day-trading. If a day trader fails to square off his open position, his stockbroker may square off his positions or convert it into a delivery trade.
Why has SEBI reduced the margin?
SEBI has taken the step of reducing the margin to protect retail investors from the problem of leverage. Leverage is good enough when trade executed moves ahead with progress, but it can sink a fund if the trade moves opposite direction.
SEBI has put control on intraday trading by reducing the leverage in the market. This step will avoid large swings happening in the stock market during times of extreme bullishness or extreme stress(bearish).
How it will Impact Traders after Implementation of New Rule
Traders consider intraday trading difficult after the implementation of the new rule. They assume reduced leverage will impact the liquidity of the market in the worst case and would disrupt the price discovery mechanism of the stock market.
From 1st September 2021, traders need to give a 100% margin upfront before their trades. Traders are not so happy with the new rule because they will have to park more cash for their trades.
How Will it Impact Stock Brokers
Now, Clearing Corporations demand minimum margin maintained throughout the day and keep a watchful eye on stock brokers. They can force brokers to demand additional margin from clients if they fall short in their positions. If a stockbroker fails to do so, it may face a heavy penalty for breaking the rule.
New Rule for Intraday Traders
The new rule for intraday is challenging for traders. SEBI is trying to rein in the trading habits of intraday traders. The Association of National Exchanges Members of India (ANMI), an association of stockbrokers suggests intraday positions are squared off before the market closes and the minimum margin requirement thereon is a kind of levy of two-day margin is unhelpful. Intraday traders assume higher margin requirements will reduce the hedging opportunities.
Conclusion
Even though traders are not happy with the SEBI move, the reduced margin will be in the interest of retail investors and traders. Some potential traders open a free Demat account and start frequent trading through a free trading account initially because of waived-off brokerage by the brokers. SEBI has put some control on those traders because they are responsible for volatile changes in market direction. This move is appreciable for small and retail investors.
