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The whole chain of initial margin, exposure margin, mark to market and margin call
Published by The Retail Trader · AUG 09, 2026 · Features
The biggest confusion in F&O is this: 'I haven't even closed my position, so how did money leave my account?' The answer is MTM, and behind it the whole margin system.
When you take a futures or short option position, you don't pay the full value of the contract. You keep a deposit, called margin. It is the exchange's guarantee that if the position goes against you, there is money available to cover the loss.
That is why margin is not 'your investment'. It is blocked capital, and on top of it you are still responsible for the full contract value.
The exchange works out, through a risk model, how far a position can move against you in one day; that gives the initial margin. On top of that there is an additional exposure margin, which works as a cushion.
These percentages are not fixed. When volatility rises, the exchange raises margin — and it often rises just when the market is already falling, that is, when you have the least capital. This is not a flaw in the system, it is its design.
At the close of every day, your open position is re-valued at that day's settlement price. Whatever you gained is credited; whatever you lost is debited. This is called mark to market.
This is why money keeps coming in and going out even while the position is still open. Your total profit or loss up to expiry will be the same, but its cash flow happens every day.
The chain runs something like this:
• The position goes against you, MTM is debited, available margin falls.
• Available margin drops below the required level — the broker will inform you of the margin shortfall and ask you to add funds.
• If the money doesn't arrive, the broker can square off the position on its own, and that timing won't be yours.
• A penalty can also be levied on the shortfall, and it comes from exchange rules, not the broker's whim.
Don't take positions with all your available capital. Always leave a portion empty, just for MTM shocks. A trader who sits with full margin used can be thrown out on a volatile day even with the right view — because he had no money left to pay for staying in.
This article is for educational purposes only — it is not a buy or sell recommendation, makes no claim of guaranteed returns, and is not advice. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.