What is SPAN and exposure margin?

CubePlus utilizes the Standard Portfolio Analysis of Risk (SPAN) method, a tool employed by exchanges to assess risk and margins for F&O portfolios. SPAN considers factors such as the underlying security’s price, volatility, and other variables to calculate the potential maximum loss for a portfolio, determining an appropriate margin. This margin is actively monitored and collected when placing an order, subject to revision by the exchanges throughout the day.

Exposure margin, an additional charge beyond the SPAN margin, is imposed by the exchanges to mitigate risks that the SPAN margin might not fully cover.

Note:

For index futures and index option selling, exposure margins amount to 2% of the contract value (Spot price * Lot size). When dealing with stock futures and option selling, it equates to 3.5% of the contract value (Spot price * Lot size) or 1.5 standard deviations of the logarithmic returns of the underlying share over the past 6 months.

The combination of SPAN and Exposure margin is referred to as the initial margin, which is collected upon entering a position. You can find this information displayed on the CubePlus order window.