SEBI's F&O risk management framework protects the systemic stability of markets — it is not designed to protect individual traders from emotional decisions. Understanding what SEBI does (and doesn't) protect you from is essential for building your own protection layer.
SEBI mandates that brokers collect initial and exposure margins based on Value at Risk (VaR) calculations. This prevents over-leverage at the systemic level. Brokers must issue margin calls before positions breach margin limits.
SEBI sets daily price bands for F&O contracts and market-wide circuit breakers (10%, 15%, 20% index moves) that halt all trading. These protect market stability but do not protect individual P&L within normal trading ranges.
Brokers must monitor intra-day mark-to-market losses and collect additional margins if positions breach limits. Square-off can happen without trader consent if margin is insufficient. This is the closest SEBI-mandated rule to a daily loss limit — but it only triggers at extreme loss levels, not at the loss limit a disciplined trader would set.
SEBI requires brokers to provide clear P&L statements and mandates the "true cost" disclosure showing brokerage + all charges. This helps traders understand their actual costs but does not restrict trading behaviour.
SEBI's framework is designed for systemic risk protection — preventing broker defaults, exchange instability, and catastrophic single-day market events. It is not designed to protect individual traders from:
Emotional overtrading: Taking 20 trades in a day when your edge only supports 4. No SEBI rule prevents this.
Revenge trading: Taking consecutive irrational trades after a loss. No regulatory framework addresses this.
Day-specific over-exposure: Doubling position size on a volatile expiry day. SEBI margin requirements scale with volatility, but not with individual trader risk tolerance.
This is the gap that TradeGuard fills: personal risk management that enforces your own rules — rules that are more conservative than SEBI's systemic minimums — via broker API.
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