MTM coverage is a key risk measure used in margin trading. It indicates the percentage of margin cover available against the funded amount.
Formula:
Example Calculation:
- Suppose a trader has ₹25,000 in their account.
- They buy stocks worth ₹1,00,000 using 4X Leverage (meaning ₹75,000 is funded by Lakshmishree).
- If the stock value falls to ₹93,000, the calculation will be:
Since the MTM coverage has dropped Below 20%, the trader's position will be Squared Off by RMS to prevent further risk.
To avoid liquidation, traders should:
- Keep additional margin funds available.
- Track market movements regularly.
- Close risky positions before reaching critical MTM levels.