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Hello Nithin,
Thanks for such a beautiful detailed clarification, Although this difficulty doesn’t concern Zerodha however primarily issues NSE and the oldsters @ NSE are nowhere to be seen however you’ve demonstrated true management by offering great commentary n well timed answer to the merchants neighborhood, Huge salute to you!
As an lively dealer I’ve the next critical concern and I’m motivated to place this in your desk totally assured that you’ll assist resolve this enormous battle.
The problem issues primarily round a mixture of such freak trades (I agree such freak trades are very very uncommon, however all the identical we have to be ready and may it go away it for probability proper?) and peak margin penalty.
I need to submit this difficulty/drawback with a real actual life instance, so you might recognize the priority and assist us merchants with an answer, please refer this instance:
As an lively dealer let’s say, I opened a Iron Fly with BankNifty Choices, let’s say BN Spot is 35000.
So I initiated a Quick Straddle i.e. I shorted 35000 CE and 35000 PE and to cowl the danger I opened a Lengthy Strangle i.e. I went lengthy on 35500 CE and 34500 PE.
To keep away from the danger of freak trades as a result of elimination of TER(commerce execution vary) I need to play secure so I executed all restrict orders as an alternative of market orders, although this takes time and i’ll find yourself lacking the chance to concurrently execute all 4 legs of the technique that’s positive I’ll nonetheless take the danger and go ahead by inserting restrict orders that’s positive.
Now, let’s say now, after few days, I need to exit this technique with revenue, if I am going to positions in kite and choose all and exit, this turns into market order and I may find yourself being a sufferer of freak trades/enormous slippages on account of unstable value actions, therefore to safeguard towards this threat, I’ll exit one after the other place with restrict orders intently observing the CMP on a regular basis. understanding totally properly that quick positions require extra margin in comparison with lengthy positions I’ll exit the lengthy positions (hedge) first after which exit the quick positions additionally one after the other all via restrict orders.
Now right here is the hazard, once I exit the lengthy positions, this place is not Iron Fly, due to the actual fact the place shouldn’t be a unadorned quick straddle the required margin for Iron Fly is often round 40k / 1 lot of iron fly, and the margin required for brief straddle is FOUR TIMES MORE i.e. 160k / 1 lot of quick straddle, so SEBI/NSE/Dealer has given this margin profit to the dealer since dealer has protected his place, however once I genuinely need to exit the place and since I don’t need to fall sufferer of freak trades by inserting market order, I’m one after the other executing restrict orders first exit lengthy positions however the system is recognizing this as if dealer has taken a brief straddle for which
4 occasions margin is required and you’ll find yourself penalizing me as peak margin penalty.
so for us merchants it should turn into like both hearth or frying pan, each methods we’re in hassle.
if we execute market order we could find yourself dropping 20-40% of capital in a single single commerce if we execute restrict order one after the other in a 4 leg technique then we’re handed out enormous enormous penalty of peak margin.
may you please assist make clear and supply an answer OR ideally impress upon SEBI/NSE to not apply peak margin penalty on retail merchants once we are usually opening / exiting multi-leg methods.
Thanks in anticipation of your favorable response.
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