Margin Calculations and Stop Losses
When placing a trade or order to open, you will be required to have funds in excess of the Margin Requirement for the trade or order. The Margin Requirement is the amount of funds in your base currency required to open a trade or order. If you attach a guaranteed or non-guaranteed stop loss to your position, you will be limiting your liability of your position from the downside risk therefore your margin requirement will change in many cases. Please view the relevant product information window for the product to see whether or not you can place a guaranteed stop onto your position and if non-guaranteed, what the margin buffer is.
When placing a trade or order to open the margin requirement can be found to the left of the stake/trade size field.
There are three key scenarios when opening a trade or an order to open that have different margin requirement calculations:
Opening a trade with no stop
Effective Margin Rate x Trade Value
‘In this example, the trade value is £15,073.60 and the Effective Margin Rate is 1%. Therefore the margin requirement can be calculated as follows: 1% x 15,073 = £150.74
Opening a trade with a guaranteed stop
Monetary Risk of trade
The monetary risk of the trade can be calculated as follows: (Entry Price – Stop Loss level) x Stake
In this example, the entry price is 6,405 and the stop loss level is 6,382.2.
(6,405 – 6,382.2) x 1 = £22.80
Opening a trade with a non-guaranteed stop
(Monetary Risk of Trade) + (Trade Value x Base Margin Rate x Margin Buffer)
In this example, the trade value is £6,405.30 and the Effective Margin Rate is 1%. The Margin Buffer can be found in the Product Information window; the Margin Buffer is 20%. The monetary risk of the trade can be calculated as follows: (Entry Price – Stop Loss level) x Stake.
Therefore the margin requirement can be calculated as follows: ((6,405.30 – 6,388.20) x 1) + (6,405.30 x 1% x 20%) = £29.91
When placing a trade or order to open with a stop there will be a ‘ceiling’ amount; the highest amount of margin you can be charged. The ceiling amount is the margin requirement in the absence of a stop: Effective Margin Rate x Trade Value.