Why does a broker block money before some positions open?
What is being blocked?
Margin is money held as a safety deposit for a leveraged position. A leveraged position can be larger than the money put up.
Is blocked money a fee?
No. A fee is charged for a transaction. Margin remains blocked while the position is open.
Can the required amount change?
Yes. It depends on the product, whether you bought or sold, the risk rules and the broker. Prices can change the requirement.
What does a blocked amount show?
A broker blocks ₹8,000 for a position. The position later loses ₹10,000. The blocked ₹8,000 was not a loss limit.
What this does not establish
Enough margin does not mean a position cannot lose more than the blocked amount.
In short
- Margin is a safety deposit, not the price of a position.
- Its amount can change, and it does not cap loss.
A broker blocks margin for a position. What does that amount show?
- The position cannot lose more than the blocked amount
- A safety deposit held while the position remains open
- The transaction fee already paid
Show the answer
B. A safety deposit held while the position remains open
Margin is a safety deposit. It is not a fee or a loss limit. The required amount can change.
Where this comes from.