A Guide to the Margin Requirements

A margin call happens when a client’s account value falls below margin requirements. 

A margin call is initiated once margin utilization reaches 100%. In this situation, a client cannot trade new instruments but is still able to keep the existing positions as long as the margin utilization is no more than 100%. 

 At EXANTE, when the utilization reaches 102%, an email is automatically sent to all client’s e-mail accounts with all the details on the necessary actions. Of course, the account manager is always CC'ed in such e-mails.

Should the margin utilization exceed 100%, the client will be in breach of margin requirements and EXANTE will have rights to decrease or fully liquidate the client’s open positions at any moment.

It is a client’s responsibility to keep enough funds to fully cover the margin requirements of open positions.

Margin utilization is the percentage of margin collateral that a client uses for buying on margin. If the margin utilization exceeds 100%, there is a risk that margin positions will be stopped out (i.e. reduced or liquidated).

Margin Utilisation is calculated as = (100 * Used for margin) / (Account value + Other collateral – Not available as margin collateral).

When you are cross-margining — you use an instrument you already own as collateral to acquire a new asset. Even if the new asset is of another type.

With our all-in-one account structure, you will not need to open separate accounts to trade options and other instruments. With EXANTE,  when you invest in bonds or stocks, you can get leverage for buying an absolutely different type of instrument — futures or options.

In simple terms, the margin requirement of your portfolio will reflect the level of risk associated with it. We use an in-house risk management system, a variation of SPAN. We look at the number of scenarios with the worst possible performance loss your portfolio can suffer over a specified time horizon.

To do so, SPAN uses a predefined set of parameters reflecting the market conditions of traded instruments. In the end, we get the margin requirement — the figure indicating the loss of value of the portfolio in a worst-case risk scenario.

The margin requirement is the minimum amount of assets that a client must have on the balance before buying on margin. The specific requirements vary and depend on the quality of your portfolio and the risks associated with the asset you intend to acquire. For many instruments, our clients can use both cash and securities to satisfy the margin requirement.

When you buy on margin — you simply borrow money from a broker to invest in more assets than you could with your funds. This way you can diversify your portfolio and increase the potential revenue from investments in a shorter period. Keep in mind that more opportunity for profit naturally comes with higher risk.

Margin report is a module in EXANTE ATP which helps you track not only the total sum and proportion of leverage, but also the entire structure of the current margin.

Margin call can be covered by:

• sending additional funds (cash or marginable securities)
• reducing position.

Effective money management considerably decreases probability to receive Margin call.

Diversified portfolio as well as use of margin at the low end of borrowing limit is recommended. You might also consider that one of the best ways to avoid margin calls is not to use leverage at all.

Finally, it is also highly recommended to monitor account daily and thus be ready if market situation changes quickly.