SPAN margin and exposure margin are the two parts of the upfront deposit you pay when trading futures and options (F&O). SPAN covers the worst-case loss the exchange estimates for your portfolio; exposure margin is an additional safety buffer charged on top. Together they form the initial margin blocked when you enter an F&O position.
If margin itself is a new idea, start with What is margin in trading?. This article builds on it.
Why do F&O trades need a special margin system?
When you buy shares in Delivery, you pay the full amount, so nobody else carries your risk. A futures contract is different: you control a large contract value with a small deposit, and losses settle daily. The clearing corporation stands guarantee for every trade, so it needs a deposit big enough to survive a very bad day. That deposit is calculated by a system called SPAN, Standard Portfolio Analysis of Risk.
How does SPAN margin work?
SPAN doesn't look at one position at a time. It looks at your whole F&O portfolio in an underlying and asks: "Across a range of possible price and volatility moves, what is the worst one-day loss this portfolio could take?" It simulates the portfolio under many what-if scenarios, price up sharply, down sharply, volatility rising, volatility falling, and combinations, and charges margin equal to the worst outcome.
Say Arjun sells one lot of a Nifty 50 call option. On its own, that position can lose heavily if Nifty rallies, so SPAN charges a large margin. If Arjun also buys a higher-strike call, the two legs protect each other; the worst-case loss shrinks, and so does the SPAN margin. That portfolio-level netting is why hedged positions cost less margin. Explained fully in What is the margin benefit on hedged positions?
Because SPAN is recalculated several times during the trading day using fresh prices and volatility, the margin on the same position can change while you hold it.
What is the exposure margin, then?
SPAN models the worst expected day, but markets sometimes do worse than models expect. The exposure margin is an extra layer charged over and above SPAN, calculated as a percentage of the contract value. Think of it as the clearing corporation's raincoat over SPAN's umbrella: usually unnecessary, occasionally essential.
| Component | What it covers | How it's set |
|---|---|---|
| SPAN margin | Worst-case portfolio loss under simulated scenarios | Risk model, recomputed intraday |
| Exposure margin | Losses beyond the model's scenarios | Percentage of contract value |
When and how do I pay these?
Both are collected together, upfront, the moment you place the order. On the order window, the blocked amount you see for a futures or short-option order is essentially SPAN + exposure. Buying an option is the exception: you pay the full premium instead, and no SPAN or exposure margin applies to a plain bought option.
A futures contract's mechanics (lot sizes, expiry, daily settlement) are covered in What is a futures contract?
Things to keep in mind
- SPAN + exposure is a minimum set by the exchange; your broker cannot collect less, and the requirement is the same across brokers.
- Margins rise when volatility rises, often exactly when your position is already under stress, so keep spare funds.
- A margin increase on an open position can create a shortfall even if you did nothing. See What is a margin shortfall, and what is the penalty?
- Hedged portfolios pay less margin, but only while both legs stay open.
Read next
What is mark-to-market (MTM)? — Margin is collected upfront. MTM settles profit and loss every single day.