VaR (Value at Risk) margin and ELM (Extreme Loss Margin) are the two margins exchanges charge on trades in the equity cash market, the segment where you buy and sell actual shares. VaR estimates the likely worst one-day fall in a stock's price; ELM is an extra buffer for moves beyond that estimate.
They are the cash-market cousins of the F&O margins covered in What are SPAN and exposure margins?, same idea, different segment.
What does "Value at Risk" actually mean?
VaR answers a blunt question: "On a normal bad day, how much can this stock fall?" The exchange studies each stock's recent price behaviour and works out a loss figure that the stock is very unlikely to exceed in a single day. That figure, as a percentage of trade value, becomes the VaR margin.
The key word is each stock. A steady, heavily traded company might have a low VaR margin. A stock that regularly swings several percent a day gets a much higher one. When Kavita compares two stocks on her watchlist (calm Bharat Paints Ltd and jumpy Sundar Textiles) the exchange may demand a far bigger margin per rupee of Sundar Textiles, purely because its price history is wilder.
| Stock behaviour | VaR margin | Why |
|---|---|---|
| Stable, liquid | Lower | Small likely one-day loss |
| Volatile or thinly traded | Higher | Large likely one-day loss |
Why is there an ELM on top of VaR?
VaR covers the likely worst day, not the worst day possible. Crashes, surprise announcements and circuit-to-circuit moves can blow past any statistical estimate. The Extreme Loss Margin exists for exactly those tail events. A flat extra percentage charged over VaR so the settlement system stays safe even when the model is beaten.
VaR + ELM together make up the upfront margin on a cash-market trade. Exchanges recalculate VaR through the day as prices move, so the requirement is not frozen at 9:15 am.
Why do some stocks need 100% margin?
For certain categories, the exchange sets the effective margin at the full trade value, meaning zero leverage, and usually delivery-only trading. This typically applies to stocks under surveillance or with very poor liquidity, where the exchange wants no speculative churn at all. The best-known example is the Trade-to-Trade segment, explained in What is a Trade-to-Trade (T2T) stock, and how can I trade it?
This is also why you sometimes can't take an intraday position in a particular stock: if the margin is 100%, an intraday product offers no benefit and brokers restrict it.
How does this affect my everyday orders?
You rarely see the words "VaR" or "ELM" on the order screen. You just see one blocked amount. But they are the reason:
- the same ₹50,000 order blocks different margins in different stocks;
- margin on a volatile stock can rise mid-week after a few big-swing days;
- some stocks quietly move to higher margin categories after unusual price action.
Things to keep in mind
- VaR margin is stock-specific. Never assume the margin you saw on one stock applies to another.
- Volatile phases push VaR margins up, so a position that fit your balance last week may need more funds today.
- A 100%-margin stock is a signal from the exchange to slow down; trade it only with full funds and a clear reason.
- Margins protect the settlement system, not your capital. A stock can still fall more than its margin assumes.
Read next
What are SPAN and exposure margins? — The equivalent pair on the derivatives side.