Top 5 Risk Management Rules Every Trader Must Follow
Risk management is the foundation of successful trading. These five rules keep you in the game.
Risk management
The money you must deposit with the broker to open and hold a leveraged position, such as a futures contract or an intraday trade.
Margin is the deposit the exchange and your broker require before you can take a position larger than your cash, typically in futures, options selling or intraday equity. It is not the cost of the trade; it is collateral against losses. For futures, the exchange sets SPAN and exposure margins that change with volatility. Suppose an SBI futures lot is worth ₹6,00,000 and the margin is ₹1,00,000. You control the full position with a sixth of its value. If SBI falls 5%, the position loses ₹30,000, and that is debited from your margin the same evening through mark-to-market settlement. If margin falls below the required level, a margin call follows. Buying options needs no margin since you pay the premium in full. Rules on upfront margin and peak margin have been tightened by SEBI; check what your broker currently requires.
Risk management is the foundation of successful trading. These five rules keep you in the game.
VideoMargin is the money your broker blocks before it lets you trade. How much depends on whether you buy for delivery, trade intraday or take a futures or options position.
VideoLeverage makes a position bigger than your cash. The spread is the gap between the buy and sell price. One multiplies your results, the other quietly charges you on every trade.