What are Margins?
Brokers are required to collect initial margins for every open position of a client and maintain them with the concerned exchange. The exchanges mandate the amount to be collected as margins which can be maintained in your trading account as cash or pledged securities. Margin requirements are subject to change, even for open positions. Any margin shortfall in a client's account will attract penalties.
Suppose that you have Rs. 10,000 in your trading account and your broker provides you with 5 times exposure. This means that given your fund balance of Rs. 10,000, you can open/enter new trades of up to Rs. 50,000 (5x).
In other words, to enter a trade of Rs. 50,000, you must have a minimum of 20% of the order value in your trading account as cash or pledged securities. These margins are in turn maintained by the broker with the concerned exchange against your open positions.
Margin requirements vary security-wise, ranging between 20% and 100% of the order value.
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