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, clients won’t be able to open new positions, yet they will still keep the existing positions as long as their margin utilization is below 100%.
Should the margin utilization exceed 100%, the client will be in breach of margin requirements and EXANTE will have the right to decrease or fully liquidate the client’s open positions at any moment. It is the client’s responsibility to keep enough funds to fully cover 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.
What is a margin requirement?
The margin requirement is the minimum amount of assets a client must hold on the balance before buying on margin.
On the EXANTE desktop platform, you can check margin requirements for each instrument by right-clicking on an instrument in the list of ‘Instruments’ > choosing ‘Instrument Info’.
For many instruments, our clients can use both cash and securities to satisfy the margin requirement.
To calculate specific requirements, we use an in-house risk management system, a variation of SPAN. It examines an amount of scenarios with the worst possible loss your portfolio can suffer over a specified time span.
The model uses a set of parameters including:
- The quality of your portfolio
- The risks associated with a chosen asset in the current market conditions
The obtained margin requirement indicates how much value a portfolio may lose in a worst-case scenario. For setting margin discounts, EXANTE uses the intercommodity spread credit between correlating underlyings.
Important note: In case of a black swan event, margin concentration penalty applies.
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.