Definition
Notional vs Margin (Leverage)
Leverage in F&O is the ratio between the large notional value a contract controls and the small margin needed to trade it.
If a Nifty future controls ₹6,00,000 of notional value but needs only around ₹1,00,000-1,20,000 of margin, the leverage is roughly five to six times. Leverage magnifies both gains and losses on the margin deployed, which is the double-edged appeal of F&O.
SEBI's tighter margin rules and peak-margin checks have reduced the extreme intraday leverage Indian brokers once offered, pushing traders to size positions by notional value rather than by the small margin outlay. Understanding true leverage is essential to avoid blowing up an account on a sharp adverse move.
Related terms
- Notional ValueNotional value is the full market value an F&O contract controls — the lot size times the underlying price.
- SPAN MarginSPAN margin is the core risk-based margin for F&O positions, calculated by simulating worst-case price and volatility moves.
- Peak MarginPeak margin is SEBI's rule requiring brokers to ensure full margin is available at the highest exposure point during the day, checked via random snapshots.
- LeverageLeverage is using borrowed money or margin to control a position larger than your own capital alone would allow.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.