What is a Daily Margin Statement and How Do You Read It?

When you invest in stocks, your stockbroker sends you several important documents. SEBI requires stockbrokers to send these documents to maintain transparency and keep you informed about your account activity. Among these documents also lies the important Daily Margin Statement (DMS).

The DMS is a document sent daily. It details the margin you need to maintain in your account. Understanding margins is important for every investor as they let you know how much money is required to cover your stock positions.

In this article, let’s study DMS in detail and learn what a margin is. We will also explore the various key constituents of DMS.

• The Daily Margin Statement (DMS) shows your margin status and includes both deposited and used margins.
• SEBI mandates brokers to send DMS daily.
• A DMS informs investors about their margin status so that they can prevent shortfalls or penalties.

In the stock market, “margins” represent the minimum amount investors must have in their accounts to trade. There are two ways to understand margins:

• Rate set by the stock exchange
  The stock exchange determines a minimum margin requirement for each trade. This ensures the investor has enough funds to cover future losses.
• Additional margins offered by some brokers
  Some brokers provide extra margin options. This allows investors to borrow funds for trading, which increases their buying power.
  Now, if we talk about a 2019 circular, SEBI required brokers to collect margins from retail investors in the cash market. This includes specific margins like:
• Value at Risk (VaR)
• Extreme Loss Margin (ELM)
• Mark to Market (MTM)

While derivatives traders were familiar with margins, for cash segment investors, this is a relatively new rule. If an investor doesn’t provide the required margin, their trade will not be executed and they may even face penalties.

Therefore, to help investors easily manage this requirement, SEBI mandates that stockbrokers send a daily margin statement. This statement informs investors of their margin status and allows them to avoid any shortfalls.

The DMS provides a detailed summary of your margin account and shows:

• The amount of margin you’ve deposited
• How much margin have you used
• Your overall margin status

By analysing DMS, you can easily track your funds and ensure you're meeting the required margins for your trades. Moreover, if you trade on multiple exchanges, this statement even combines all your trades into one report.

On the security front, this statement is password-protected. You can access it only by using your PAN as the password.

For a better reading of the DMS, you must understand its various key constituents. Check them below:

• Segment
  This column identifies the clearing corporation and market segment (like NSE or BSE). You can use it to verify which exchange handled your trades. If you trade on different exchanges, this section helps in grouping your trades accordingly.
• Trade day
  This shows the date when you made a trade in a specific segment. Since the statement is daily, it reflects the date of the trades for that particular day.
• Days
  Be aware that margins are held for three days (T, T+1, T+2) until the trade is settled by the exchange. This column helps you track the margin status across these three trading days.
• Funds
  This section shows the balance available for investment until 5 p.m. It is based on the amount "available to invest" and does not include trades made after market hours.
• Value of securities after haircut
  After selling a stock, it is credited to your broker’s pool account until settlement (T+2). This column shows the reduced value (after a "haircut") of these stocks. Please note that this value still counts towards your margin.
• Total margins available
  It is the sum of available funds and the value of your stocks after the haircut. This shows how much you can use as margin for your trades.
• Total upfront margin
  This column shows how much margin has been blocked for unsettled trades. It also includes specific margins like VaR and ELM.
• Consolidated crystallised obligation
  This section shows the Mark-to-market (MTM) margin requirement for all unsettled trades. By analysing it, you can easily track your margin requirements when your trades fluctuate in value.
• Total margin required
  It shows your total margin requirements by including both upfront and MTM margins. In most statements, the top row shows upfront requirements, and the bottom shows MTM obligations.
• Excess/shortfall
  In DMS, this section shows if you have enough margin or need to deposit more. A positive number means extra funds, while a negative number means you need to add money to avoid a penalty.
• Margin status
  It shows how much balance is available for trading the next day. A negative number means you need to add more funds to your account to keep trading.
• Penalty
  If your account has been penalised for insufficient margins, this column will display the penalty amount.