The abbreviation for SPAN is Standard Portfolio Analysis. It can be defined as a leading margin system and is adopted by a huge number of futures exchanges and options exchanges.
The operation of SPAN is administered by a picky group of algorithms. The algorithms examine and assess the entire portfolio of the account of a trader in order to find out the one-day risk for that particular account. Based on this analysis, a margin is determined and is named as the SPAN margin in the share market terms.
What is Exposure Margin and Span Margin?
In the Indian stock market, exposure margin is always charged above the margin known as SPAN margin. Brokers have the freedom to charge exposure margin accordingly. If there are any losses that take place on days which are uncovered by the SPAN margin, it will be charged by the brokers. In stock trading, both the margins are equally important and need to be calculated in the correct manner.
SPAN margin is essential for the people who act as options and futures writers in the equity market need a good margin amount so that their losses can be covered from this amount in their account.
In the SPAN system, the one-day move is calculated based on the worst situation and as a result, the margin is set for each and every position. Once this margin has been established with the help of algorithms, the extra margin present on current positions is effortlessly moved to either new positions or to those current positions that need extra margin.
Whereas in the case of exposure margin; exchanges such as National Stock Exchange levy the MTM or exposure margin when they enter the derivative segment. Instead of using individual scrip, the base Portfolio system is used to calculate it as Initial margin is also a part of this.