Are you a trader in equity/currency and commodities? And tired of maintaining separate balances in each account?
Well, SEBI on Sept 2017 proposed trading in equity and commodity markets via a single entity.
So what does it mean??
In the current scenario brokers need to have 2 entity’s to allow their clients to trade in equity and commodity but now with SEBI’s proposal, brokers can allow trading in equity and commodity via a single entity.
So say goodbye to those days where 2 separate accounts were required for trading in equity and commodity and welcome a single integrated account for effortless trading.
Mr. Vikram CEO of Firstock pointed out the current scenario where traders of both equity and commodity market have to transfer money to 2 companies (one of equity & other of a commodity) which was a huge constraint and he intends to address this constraint via the integration which would result in reduction of transfers between equity and commodity account which was time-consuming, costly, required more working capital & lastly inefficient use of funds – loss of opportunity which is of great importance in Equity and Commodity market with movements happenings in split seconds.
He also pointed out the below few scenarios:
Buy Scenario:
Mr. A has Rs. 60,000 in a savings account and intends to trade in equity and commodity. So he has divided the amount and transferred Rs. 20,000 to equity account and the remaining Rs. 40,000 to his commodity account.
Next day due to an uptrend in equity market he intends to buy shares worth Rs. 25, 000 but is limited to the amount available in his equity account of Rs. 20, 000. So in order to buy the shares, he will have to conduct an additional transfer of Rs. 5,000 from his commodity account to equity account.
Margin Scenario:
Mr. B has Rs. 1, 60,000 in a savings account and intends to trade in equity and commodity. So he has divided the amount equally and transferred Rs. 80,000 to equity account and the remaining Rs. 80,000 to his commodity account.
He has entered into 2 open positions where one is in equity and the other in a commodity. The margin requirement for both these positions is Rs. 80, 000 each.
Suppose at end of the day he faces a loss of Rs. 30, 000 on his commodity position and a profit of Rs. 50, 000 on his equity position and as a result his end of the day commodity ledger balance would be Rs. 50, 000 (80, 000 – 30, 000) and equity ledger balance would be Rs. 1, 30, 000 (80, 000 + 50, 000).
In the above scenario, he can safely carry forward his equity position to the next day as he has sufficient margin amount in his equity account but he will have to deposit the loss amount of Rs. 30, 000 in his commodity account in order to maintain the required margin to carry forward his commodity position to the next day failing which his position would be squared off by the broker.
So, he will have to conduct an additional transfer of Rs. 30,000 to his commodity margin account by EOD for which he will have to depend on his registered bank account only as it is not possible to transfer money from equity margin account to commodity margin account within a day.
Intraday Scenario
Mr. C has Rs. 1, 60,000 in a savings account and intends to trade in equity and commodity. Since he visions a great opportunity in BankNifty he transfers the complete money to equity account.
As visioned he made a profit of Rs. 40,000 on his intraday trade. So his total equity account balance is Rs. 2, 00, 000 (1, 60, 000 + 40, 000). He intends to transfer this money to his commodity account for trading in Crude-oil but can’t since it is not possible to transfer money from equity margin account to commodity margin account within a day.
So as a result he will loss an opportunity which is of great importance in the stock market.
So he has divided the amount equally and transferred Rs. 80,000 to equity account and the remaining Rs. 80,000 to his commodity account.
The transfers in the above scenarios between equity and commodity account will cause him additional money i.e. transfer charges and don’t forget the additional time and inconvenience.
In the New Scenario
SEBI has allowed trading in equity and commodity market via a single entity. So brokers who provide equity and commodity trading facility can integrate both their companies into one entity which will allow traders to trade in equity and commodity via a single company thus a single margin account.
Let’s recall both the before scenarios and see the benefits of this change
Buy Scenario:
Mr. A has Rs. 60,000 in saving account and intends to trade in equity and commodity. This time rather than dividing and transferring the amount between equity and commodity account, he can transfer the complete Rs. 60,000 to a single all in one margin account.
Next day due to an uptrend in equity market he intends to buy shares worth Rs. 25, 000 but this time he can easily buy those shares as the complete money is in all in one margin account.
Margin Scenario:
Mr. B has Rs. 1, 60,000 in saving account and intends to trade in equity and commodity. This time rather than dividing and transferring the amount between equity and commodity account he can transfer the complete Rs.1, 60,000 to a single all in one margin account.
He has entered into 2 open positions where one is in equity and the other in a commodity. The margin requirement for both these positions is Rs. 80, 000 each so a total of Rs.1, 60,000.
Suppose at end of the day he faces a loss of Rs. 30, 000 on his commodity open position and a profit of Rs. 50, 000 on his equity open position. So his end of the day all in one margin account balance would be Rs.1, 80,000 (1, 60, 000 + 50, 000 – 30, 000.)
In the above scenario, he can safely carry forward both his equity and commodity positions to the next day as he has sufficient ledger amount to meet his margin requirement.
Intraday Scenario
Mr. C has Rs. 1, 60,000 in a savings account and intends to trade in equity and commodity. Since he visions a great opportunity in BankNifty he transfers the complete money to his new all in one account.
As visioned he made a profit of Rs. 40,000 on his intraday trade. So his total all in one account balance is Rs. 2, 00, 000 (1, 60, 000 + 40, 000). He intends to trade in Crude-oil and unlike the old scenario he can trade immediately and not depend on any transfer or any other resort and most importantly wont loss an opportunity which is of great importance in the stock market.
So, with the new, all in one margin account he need not like before transfer money between equity and commodity account and this will save the additional money i.e. transfer charge and also the additional time and inconvenience.
Welcome to the new chapter of trading
Hi! That’s really an awesome post to read.
I appreciate the effort you had taken to write this post with good examples.
Look forward to reading your posts.