VAR Margin
Value at Risk, or VAR, is a statistical estimate of how much a stock’s price could fall in a single day with 99% confidence. NSE and BSE use VAR to set the upfront margin for cash equity trades. Combined with the Extreme Loss Margin, VAR forms the bulk of your cash-market margin requirement for intraday trades.
Key takeaways:
- VAR margin estimates the worst-case daily loss for a stock at a 99% confidence level.
- It is the largest component of cash equity intraday margin.
- Recalculated daily based on rolling volatility and recent price action.
- Higher VAR = higher margin = lower leverage available on that stock.
- VAR + ELM + ad-hoc = total cash equity intraday margin requirement.
How VAR is calculated
NSE follows a methodology developed by SEBI’s risk committee. The exchange tracks each stock’s rolling returns and computes the standard deviation of daily moves. The VAR margin is set at the higher of:
- Three times the rolling standard deviation of daily returns, or
- A minimum floor based on liquidity and index inclusion.
For Nifty 50 stocks, VAR floor is typically 7.5%. For other stocks, the floor is higher — often 15% or more for less liquid scrips.
VAR in margin requirement
Your cash equity intraday margin is approximately VAR + ELM + ad-hoc. For a Nifty 50 stock with VAR 7.5% and ELM 5%, the total margin requirement is around 12.5–13%. So a ₹1 lakh trade requires roughly ₹13,000 in upfront margin — an effective leverage of about 7.7x.
Why VAR matters more after peak margin rules
Before peak margin, brokers could discount VAR in their internal risk models. SEBI’s 2021 framework forces brokers to collect 100% of the exchange-prescribed VAR upfront. This is why intraday leverage on cash equity is now firmly capped — your broker cannot offer more than the exchange formula allows.
VAR for delivery vs intraday
| Trade type | VAR relevance |
|---|---|
| Delivery (CNC) | None — full 100% margin required |
| Intraday (MIS) | VAR + ELM + ad-hoc decides margin |
| F&O | Replaced by SPAN + Exposure |
Stocks where VAR is unusually high
- Stocks under additional surveillance (ASM/GSM lists).
- Stocks with low daily turnover or thinly traded counters.
- Small-caps with high realised volatility.
- Stocks just after a stock split or large corporate action.
How traders use VAR data
You will rarely see “VAR” mentioned by name in your broker app — it shows up indirectly through the leverage shown on each stock. By comparing required margins across stocks, you can see which ones the exchange flags as high-VAR. Active intraday traders use this as a quick volatility proxy when scanning for setups.
Frequently asked questions
Does VAR margin change daily?
Yes. The exchange recomputes VAR daily based on rolling volatility, so leverage available on a stock can move.
Is VAR the same on NSE and BSE?
The methodology is the same but stock-level numbers can differ slightly because they track different turnover bases.
Why does my margin requirement rise during volatile periods?
Higher recent volatility increases VAR, which increases margin. The exchange protects itself from worsening risk.
Does VAR apply to F&O?
No. F&O margin uses SPAN + Exposure. VAR is a cash-equity concept.
