ELM (Extreme Loss Margin) on Zerodha
Extreme Loss Margin (ELM) is a tail-risk buffer added on top of SPAN margin for F&O positions on Indian exchanges. It exists to cover the loss scenarios that exceed SPAN’s standard 16 scenarios; effectively the worst-of-the-worst buffer.
What ELM covers
SPAN computes worst-case loss within a defined scenario range. ELM covers:
- Beyond-SPAN tail scenarios (very large adverse moves).
- Worst-case volatility spikes not captured by SPAN’s volatility scenarios.
- Liquidity-driven mark-to-market gaps.
Rate
| Contract type | ELM rate (approximate) |
|---|---|
| Index F&O | 1-3% of notional |
| Stock F&O | 3-5% of notional |
| Currency derivatives | 0.5-1% of notional |
| Commodity (MCX) | 1-4% (varies) |
These are set by the exchange and revised periodically.
ELM vs Exposure
In some exchange documentation, ELM and Exposure margin are treated as distinct; in others (Zerodha’s calculator), they may be aggregated as “Exposure”. Functionally:
- ELM = tail-risk buffer (per-contract).
- Exposure margin = overall non-SPAN buffer (per-contract).
- Combined = “Exposure” as shown on Zerodha margin calculator.
Per-contract, not portfolio
ELM is per-contract; multi-leg hedged strategies don’t get ELM reduction. Total ELM = sum of ELM for each leg.
Why ELM matters
For a Rs 16.5 lakh notional Nifty option contract:
- SPAN: ~Rs 1 lakh.
- ELM: ~Rs 20-30K.
- Exposure: ~Rs 50-80K (depending on classification).
- Total initial margin: ~Rs 1.5-1.7 lakh.
ELM adds 1-3% to the margin requirement.
SEBI framework
SEBI’s margin framework explicitly includes ELM:
- Defined as a minimum percentage of notional.
- May be supplemented during high-volatility periods.
- Cannot be waived by brokers.
On the Zerodha margin calculator
The Zerodha margin calculator shows SPAN + Exposure as the combined initial margin. ELM is typically rolled into Exposure for retail display.
Recent changes
Post-2020 SEBI framework changes:
- Tightened ELM rates for stock F&O.
- Added explicit hedge benefit limits.
- Linked to peak margin reporting.
See also
- SPAN margin on Zerodha
- Exposure margin on Zerodha
- Exchange margin types (SPAN, ELM, Adhoc, VAR)
- VAR + ELM intraday margin on Zerodha
- SPAN and exposure margin on Kite
- Zerodha margin calculator
- Margin required on order window
- Margin available / used / cash on Kite funds
- Margins and leverage at Zerodha
- Hedged positions margin benefit on Zerodha
- Naked option selling margin on Zerodha
- Cash component vs collateral component
- 50:50 cash collateral rule explained
- SEBI peak margin rules explained
- Upfront margin requirements post-2020
- SEBI margin pledge rules September 2020
- Margin shortfall and auto-square-off
- Intraday leverages for MIS / CO
- Intraday margin increases on volatile days
- Margin pledge (Zerodha)
- Margin haircut
- Delivery margin field on Kite
- Settlement (F&O)
- Lot size revision F&O 2024
- Futures and options
- Zerodha
- Kite (Zerodha)
External references
References
- NSE Clearing, Margin framework including ELM, nseclearing.com.
- SEBI, F&O margin circulars, sebi.gov.in.
- Zerodha, Margin policies, zerodha.com.