What margin actually covers, and what leverage actually changes.

Margin is the collateral a broker requires to open and hold a futures or options position — a fraction of the contract's total value, rather than the full amount, because the exchange and broker are managing the risk of the position rather than requiring full upfront payment for the underlying.

Margin is not a fee or a cost in itself; it's blocked capital that's returned when the position is closed, alongside whatever profit or loss the position generated. It exists so that if the position moves against the trader, there's collateral available to cover the loss.

Margin requirements are set by the exchange based on the instrument's volatility and are recalculated regularly, which means the margin required to hold the same position can change from day to day as market conditions shift.

SPAN (Standard Portfolio Analysis of Risk) margin is the exchange-mandated minimum margin for futures and short options positions, calculated by simulating how a position's value would change across a range of possible price and volatility scenarios over a set horizon, and requiring margin to cover the worst reasonably likely loss in that simulation.

Because SPAN accounts for a whole portfolio rather than each position in isolation, offsetting or hedged positions can reduce total SPAN margin compared to holding each leg's margin separately — the system recognizes that a hedged portfolio has lower net risk.

SPAN margin is recalculated multiple times a day as prices and volatility move, which is why the margin required to hold an existing position can increase intraday even without adding to it, if market conditions become more volatile.

Exposure margin is an additional margin charged on top of SPAN margin, meant to cover risk beyond what SPAN's scenario simulation captures — particularly the risk of sharp, larger-than-modelled moves. It's typically calculated as a percentage of the contract value.

Total margin required to hold a futures or short options position is generally SPAN margin plus exposure margin, not either one alone — brokers display this combined figure when showing margin requirements for a trade.

Exposure margin percentages can differ by instrument and are set with reference to exchange guidelines, so the same notional exposure in two different securities can carry meaningfully different total margin requirements.

Leverage is the ratio between a position's total notional value and the margin required to hold it. If a futures contract worth ₹10,00,000 requires ₹1,00,000 in margin, the position is effectively leveraged 10:1 — a 1% move in the underlying moves the position's value by roughly 10% of the margin deployed.

Leverage amplifies both gains and losses proportionally — it doesn't change the underlying probability of a trade working out, only the size of the outcome relative to capital committed. This is why position sizing and stop-loss discipline matter more, not less, in leveraged instruments.

Because losses in a leveraged position can exceed the initial margin in fast-moving markets, brokers monitor margin levels continuously and can force-close positions that fall below required maintenance margin, rather than allowing losses to run unchecked.

Futures positions are marked-to-market (MTM) daily — gains and losses are calculated and settled in cash at the end of each session based on the day's closing price, rather than only at the position's eventual close. A losing position requires additional margin to be deposited to maintain it.

If the margin available in the account falls below the required maintenance level after MTM settlement, the broker issues a margin call requesting additional funds. If the shortfall isn't met, the broker can square off the position to bring the account back within margin requirements, regardless of whether the trader wanted to hold it longer.

This is a structural feature of leveraged trading, not a penalty — it exists to prevent losses from accumulating beyond what the account's collateral can cover, protecting both the trader and the broader clearing system.

When a portfolio holds offsetting positions — for example, a long futures position alongside a long put, or a covered call against held shares — the combined position carries lower net risk than either leg alone, and exchanges typically extend a margin benefit reflecting that reduced risk.

This margin benefit is calculated at the portfolio level, not leg by leg, which is part of why professional and systematic traders often structure positions as explicit hedges rather than holding directional exposure without an offset — it's more capital-efficient for the same net market view.

The margin benefit is contingent on both legs remaining in place — closing one side of a hedged position can trigger an immediate increase in required margin on the remaining leg, since the offsetting risk that justified the reduction no longer exists.