InvestorQ : Why does the exchange impose margins on traders and investors?
Nishant Chandani made post

Why does the exchange impose margins on traders and investors?

Niraja Mehta answered.
3 years ago
That is one more level of risk management that the exchange employs through the NSCCL. It imposes stringent margin requirements as a part of its risk containment measures. The categorization of stocks for the imposition of margins is as under:
The Stocks which have traded at least 80% of the days for the previous six months constitute the Group I and Group II.
Out of the scrips identified for Group I & II category, the scrips having mean impact cost of less than or equal to 1% are categorized under Group I and the scrips where the impact cost is more than 1, are categorized under Group II.
The balance of the stocks is classified into Group III.
The impact cost is calculated on the 15th of each month on a rolling basis considering the order book snapshots of the previous six months. On the basis of the impact cost so calculated, the scrips move from one group to another group from the 1st of the next month. (Impact cost is the price impact on a stock when a large order is placed). Ideally, stocks that have a high impact cost can create price volatility.
For securities that have been listed for less than six months, the trading frequency and the impact cost is computed using the entire trading history of the security.