Hi Everyone
We have rolled out an important update in the Risk Management System & Policies at Dhan that we have deployed this weekend. The update is regarding the options strategies where hedged positions are involved - and option traders are availing hedge benefit on Dhan for their positions.
Traders often make options strategies with a hedge to reduce both risk and upfront margin requirement. Examples of popular strategies are Iron Condor, Iron Butterfly, Spread etc… Now one thing to note here is that upfront margin requirement is reduced in these strategies as the hedge order leg is executed first and this ensures Option Traders get the hedge benefit.
For example, let’s take Bull Call Spread as a trading strategy
Scrips | Buy/Sell | Premium | Individual Margin Requirement |
---|---|---|---|
NIFTY 10 NOV 18100 CALL | Buy | ₹130.00 | ₹6,500 |
NIFTY 10 NOV 18300 CALL | Sell | ₹50.00 | ₹94,271 |
Overall Margin Requirement if Buy leg is executed first ₹24,850
{To view margin requirement of your options strategy, go to basket order on dhan}
Hence, we see the upfront margin requirement is reduced if the hedge leg is executed first (here in this case, the Buy order). Now one can create this strategy with only ₹24,850 in a trading account. But if someone wants to just place a sell order (without hedge/buy order), the margin requirement is ₹94,271.
Now, after the successful execution of the strategy, one wants to exit the hedge position (Buy position). The hedged position/parent position (Sell Position) will now be unhedged, so you need to maintain a sufficient margin of ₹94,271. If not available, there will be a margin shortfall for your positions.
Introducing Hedge Break Alerts: Now to ensure that you are aware of such scenarios when trading in options and avoid margin shortfall - we have introduced an update, that whenever one exits the hedge position and sufficient margin is not going to be available in Dhan trading account, our Risk Management systems will alert the user with the following message:
“This trade is for a hedged position, exit the parent leg first or add margin of INR XXX to exit this position individually.”
Of course INR XXX is the exact value of the margin required, that is shown to our users in real-time.
We understand that for you as a trader many times exiting the position is important without any margin shortfall or need to add additional capital - hence it is now advised to you that on Dhan you should exit the parent leg / hedged position (sell position) first. In such a scenario, you would be able to exit the position as usual - and then exit the other leg as well.
We understand that there are many Option Traders on Dhan, and we have introduced these alerts to ensure that users avoid any type of margin shortfall, or need to add capital or otherwise and also at the same time introduce better risk management practices for clients.
That’s all from us. We want to ensure you continue to trade as a Super Trader on Dhan.
Thank you,
-Kuldeep Mathur