Concentration Rate is the penalty rate for having proportionally too much of your funds concentrated in a single asset, meaning that a large proportion of your cash is invested in a single instrument. This rate is applied to encourage diversification and reduce risk from exposure to a single asset. Concentration Rates apply to most Forex, Cryptocurrency CFDs, and high-risk Stock and ETF instruments.
Concentration Margin is the margin shown in your account, if, due to high exposure in a single asset, Concentration Rate is applied to an investment.
There are two ways the Concentration Margin is calculated, depending on the information shown in “Instrument Info”:
Concentration Margin is applied if in “Instrument Info” you see “Required Margin” and “Concentration Rate.” This means that the Required Margin * Concentration Rate* Quantity is greater than the Net Asset Value; otherwise standard Leverage Rate is applied.
Example - BTC.USD
BTC.USD (Bitcoin / US Dollar) has:
Required Margin of $7975
Concentration Rate of 167%
The current market price is $26,613
All of this information can be found in “Instrument Info.” Now, let's assume:
your NAV (Account Value) is $10,000
You want to buy 0.5 of BTC at market price:
$7975 (Required Margin) * 167% (Concentration Rate) * 0.5 (Quantity) = $6659 < Account Value ($10,000), so Concentration Margin is not applicable. Standard Required Margin of $7975 per 1 BTC is applied, so $7975 (Required Margin) *0.5 (Qty of BTC) = $3987 is blocked as margin.
If you wish to purchase 1 BTC (worth $26,613 at market price with the same NAV of $10,000:
$7975 (Required Margin) * 167% (Concentration Rate) * 1 (Quantity of Investment in BTC) = $13,318 > Account Value ($10,000), so Concentration Margin is applied, and $13,318 is blocked as margin. This will cause a margin call on the account, as Margin Utilisation will be $13,318 (Concentration Margin) / $10,000 (NAV) = 133%
Concentration Margin is applied if in the “Instrument Info” you see “Leverage Rate” and “Concentration Rate.” Concentration Rate * Value is greater than Net Asset Value; otherwise standard Leverage Rate is applied.
Example - Forex
JPY/USD.E.FX (Japanese Yen/US Dollar) has:
Leverage Rate of 2%
Concentration Rate of 5%
All of this information can be found in “Instrument Info.” Let's assume:
your NAV (Account Value) is $10,000
You want to open a long position in JPY/USD valued at $100,000:
5% (Concentration Rate) * $100,000 (Value) = $5000 < Account Value ($10,000), so Concentration Margin is not applicable, meaning that you will be charged a standard leverage rate of 2%, so 2%*$100,000 = $2000 will be blocked as margin.
If you wish to open a long position worth $300,000:
5% (Concentration Rate) * $300,000 (Value) = $15,000 > Account Value ($10,000),so Concentration Margin is applied and $15,000 will be blocked as margin. This would cause the account to go into margin call, as margin utilization would be 150% ($15,000 Concentration Margin / $10,000 Account Value).
Example 2 - AVEM.ARCA, ETF (with pictures)
AVEM.ARCA (Avantis Emerging Markets Equity ETF) has a market price of $54.51,
Leverage Rate of 20%
Concentration Rate of 100%
All of this information can be found in “Instrument Info.” Let's assume:
your NAV (Account Value) is $10,000
You want to open a long position of 100 AVEM.ARCA (worth 5,451 USD)
100% (Concentration Rate) * $5451 (Value) = $5451 < Account Value ($10,000), so Concentration Margin is not applicable, meaning that you will be charged a standard leverage rate of 20%, so 20%*$5451 = $1090.30 will be blocked as margin.
However, if you wish to open a long position of 200 AVEM.ARCA (worth $10,903):
100% (Concentration Rate) * $10,903 (Value) = $10,903 > Account Value ($10,000),so Concentration Margin is applied and $10,903 will be blocked as margin. This would cause the account to go into a margin call, as margin utilization would be approximately 115%
The same logic, as described above, applies to short positions.