Margin is the money you must keep with your broker before placing a trade. It works like a security deposit: the exchange wants proof that you can absorb a loss on the position before it lets you take that position at all.
Why does a security deposit exist in trading?
Think of renting a flat. The landlord takes a deposit before handing over the keys, not because they expect you to break something, but because if you do, the repair money is already in hand.
Markets work the same way. When Priya buys shares of Kaveri Motors, the seller must receive money and Priya must receive shares on the settlement day. If the price swings sharply in between, someone could be tempted to walk away from the deal. Margin removes that temptation: a slice of money is locked in advance, so the trade settles no matter what the price does.
The chain looks like this:
| Who | Role in margin |
|---|---|
| Exchange / clearing corporation | Sets how much margin each trade needs |
| Your broker | Collects that margin from you, upfront, and passes it on |
| You | Keep enough balance so the margin stays covered |
When is margin collected?
Before the trade, not after. The market regulator, the Securities and Exchange Board of India (SEBI), requires brokers to collect the applicable margin upfront. That is why an order without sufficient balance is rejected instead of going through and being settled later.
You can see this on the order screen itself. When you type in a quantity and price, Rupeezy shows the exact amount being blocked. That figure is explained in What does the "margin required" amount on the order window mean?
Does every trade need the same margin?
No. The margin depends on what you are trading and how you are trading it:
- Delivery equity. You pay the full value of the shares, because you are buying them outright.
- Intraday equity. You close the position the same day, so the exchange framework allows a position larger than your cash, against a minimum margin. The product types are compared in What do Delivery, Intraday, T+5 and Carryforward mean?
- Futures and options. You don't pay the full contract value; instead the exchange charges a margin sized to the risk of the contract. The building blocks are covered in What are SPAN and exposure margins?
Riskier, more volatile instruments demand a bigger deposit, exactly as a landlord would ask a higher deposit for a flat full of glass furniture.
What happens to my margin after the trade?
It stays blocked while the position is open. If the position starts losing money, or the exchange raises the margin requirement, you may need to add funds. Otherwise you face a shortfall, which has its own consequences (see What is a margin shortfall, and what is the penalty?). When you close the position, the blocked margin is released back into your available balance, adjusted for your profit or loss.
Things to keep in mind
- Margin is a deposit, not a fee. It is blocked, not spent, and is released when the position closes.
- The required margin can change while your position is open, especially in volatile markets, so keep a buffer above the bare minimum.
- An order rejection for "insufficient margin" is the system protecting the settlement process. Add funds or reduce the order size.
- Trading on margin lets you take positions larger than your cash, which magnifies losses as much as gains.
Read next
What is leverage, and why is it risky? — Margin is what makes leverage possible. This is what leverage does to you.