What is a margin call?
Margin call is the term used to describe a situation when the value of an account ( total deposits plus or minus any profits/losses) falls below margin requirements.
Margin call is initiated once Margin Utilization reaches 100%. In this situation the client will be prevented from opening new positions, but will be able to keep the existing positions as long as the margin utilization is below 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.
What is margin utilization?
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) and a margin call will be initiated.
Margin Utilization is calculated as = (100 * Used for margin) / (Account value + Other collateral – Not available as margin collateral).
What is cross-margining?
Cross margining is the process of offsetting positions whereby excess margin from one account is transferred to another account to satisfy margin maintenance requirements. When 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, thus increasing liquidity and financial flexibility.
With our all-in-one account structure, you will not need to open separate accounts to trade different types of assets. EXANTE allows you to invest in bonds or stocks to obtain leverage for buying different types of instruments, for example, futures or options.
How is the margin requirement calculated?
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.
What is the margin requirement?
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.
What is "buying on margin" ?
Buying on margin is the purchase of an asset by using leverage and borrowing the balance from a bank or broker.
When buying on margin you are capable of investing in more assets than you could with your funds alone. This way you can diversify your portfolio and increase the potential revenue from short-term investments. Keep in mind that higher revenue is accompanied with additional risk exposure.
Track your use of margin
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. Click "Margin Report" on your top toolbar.
Cover a Margin Call
Margin call can be covered by:
- sending additional funds (cash or marginable securities)
- reducing position
Avoid a Margin Call
Effective money management considerably decreases probability to receive Margin call. We recommend:
- Diversifying your portfolio.
- Using margin at the low end of borrowing limit. You might also consider that one of the best ways to avoid margin calls is not to use leverage at all.
- Monitor account daily and thus be ready if market situation changes quickly.