What Is Value At Risk (VaR) Margin?
A television screen displays a news report about the coronavirus outbreak as a trader monitors financial data on computer screens on a trading floor. (Photographer: Chris J. Ratcliffe/Bloomberg)

What Is Value At Risk (VaR) Margin?

This is a series of explainers to educate and inform new investors. In association with Dun & Bradstreet India as knowledge partner.

Value at Risk (VaR) Margin: Definition, Meaning & Basics

Value at Risk margin is a measure of risk. It is used to estimate the probability of loss of value of a share or a portfolio, based on the statistical analysis of historical price trends and volatilities. Based on VaR margin, stock exchanges calculate risk of loss in the value of a stock, typically with a one-day time horizon.

To arrive at VaR Margin, three important parameters are considered:

  1. Confidence level
  2. Time horizon
  3. Estimate of loss

A stock with a 10% VaR margin requirement means that there may be a potential loss of 10% in the value of the stock in one day with a given level of confidence—say 99%.

VaR margin is published by the exchanges multiple times during the day, based on the movement in price of a stock. VaR margin is used to apply haircut on stocks by many entities such as banks, which provide loans against shares.

Visit the Financial Terms section for more.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.