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These changes listed below only affect retail clients of EU firms (that are subject to ESMA regulation), and do not apply to professional clients. Please add any query, question, or request for clarification below. 

Message added by JamesIG

ESMA margin rules from July 30th

JamesIG

New ESMA regulations coming into force for the EU region are set to standardise the way margin close out rules work for retail traders. On the IG trading platform the new margin close-out rules will come into effect from 1pm on Monday 30 July. Please find an overview of the new regulation and how this may effect your account. We've included a useful video and a worked example which may also help. 

Please remember that these changes only affect retail clients of EU firms (that are subject to ESMA regulation), and do not apply to professional clients. Please add any query, question, or request for clarification in the comments box.

 

What is the new ESMA margin close out rule?

Put simply, for all ESMA regions we will need to include running losses for limited risk positions when looking at the equity calculation. Let's look at a worked example. 

  • Say you have £1200 cash on your IG account. 
  • You place a FTSE trade with a guaranteed stop and it requires a margin of £1000. 
  • If the market moves against you £200's worth you would then start to eat into your margin.
  • If the market continues to move against you by a further £500 (i.e. 50% of the margin required to open your trade) your position would be closed.
  • This is because 50% of your margin was used up, and your equity value was therefore £500 (half of the margin). 
  • The new ESMA rules require us to close the position. 
  • You would be left with £500 in your account. 
  • Please remember if the market gaps over this level then there is no guarantee to close your trade at this exact 50% level. There is a 'negative balance protection' rule which will be in place from July 28th, however this applies to the account as a whole.

There are a couple of other important things to note

  1. We will not be implementing 24 hour or weekend close out rules for ESMA retail clients.  This change will be made on  July 30 from 1pm and will be apply on an account level (both existing and new positions).
  2. You can still use running profits to cover margin on new positions.
  3. Positions which have guaranteed stops will be margined at the higher value; max risk on the trade or the underlying market margin rate. 

 

What does this mean for me?

"I currently have a limited risk account" - If you currently have a limited risk account (i.e. every time you open a new trade you have to have a guaranteed stop attached to your trade) then you may be at risk of having your positions closed out automatically. This will be the first time that previously 'limited risk' accounts could get closed out automatically. 

"I currently have a regular account" - If you currently have a regular account (i.e. you don't need to apply a guaranteed stop to every position, however it is an option if you wish) then you may be at risk of having your positions closed due to the above change in close out rules. When we calculate account equity today, we do not currently include running losses on positions with guaranteed stops. Under the new ESMA requirements, such positions will need to include running losses as part of the deposit ratio calculation. This means that your positions will be closed out when your cash, including all profit and loss, reaches 50% of your margin requirement.

 

What is 'margin'? 

In trading, margin is the funds required to open and maintain a leveraged position. You can read more about margin via our glossary definition of what margin means on the IG platform. You can also have a once over of the below video. 

 

If you have any queries or questions regarding the new ESMA regulations please add a comment below.

Once again, please remember that these changes only affect retail clients of EU firms (that are subject to ESMA regulation), and do not apply to professional clients. Please add any query, question, or request for clarification below.

You may also find the following links useful.

Best
James



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Will the new close out rules apply to pre - existing poistions?

Please confirm the close out is on the account as a whole - so say I have 3 positions  with margin requirement of £1.5k  each.  I will only be a risk of close out if my net equity falls below £2.25K, even if there is a running loss on one of the positions of £1k.  

 

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The new close out rules will apply to pre-existing positions. 

This is also for the account as a whole. As you stated, your example would be correct. 

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Guest Stephen Buckley

Posted

So there now no point in guaranteed stops or limited risk accounts any more

 

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On 7/29/2018 at 8:58 AM, Guest Stephen Buckley said:

So there now no point in guaranteed stops or limited risk accounts any more

you can still use guaranteed stops and they retain their use, however 'limited risk' accounts are no longer required as all retail client accounts have negative balance protection. 

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Wow because of the rules I’ve just deposited £250 (the minimum amount) and I can’t seem to place a trade (FX or indices) !!!?

minimum margin required to place most trades...is just over £330 from what am seeing. These rules have messed things up, and a put off of trading now 

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Guest Turnip

Posted

Atino - imply save a few more pounds - take your account to £500 for example, then you could trade dax, for example at £1 per point maybe.

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On 7/30/2018 at 10:06 AM, JamesIG said:

you can still use guaranteed stops and they retain their use, however 'limited risk' accounts are no longer required as all retail client accounts have negative balance protection. 

Does this mean that as soon as your available balance goes to a negative value, positions will be closed?

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1 hour ago, Guest Nick said:

Does this mean that as soon as your available balance goes to a negative value, positions will be closed?

No - negative balance applies to the account as a whole. Close out rules are as the example above, and reiterated below (for ESMA retail clients).

  • Say you have £1200 cash on your IG account. 
  • You place a FTSE trade with a guaranteed stop and it requires a margin of £1000. 
  • If the market moves against you £200's worth you would then start to eat into your margin.
  • If the market continues to move against you by a further £500 (i.e. 50% of the margin required to open your trade) your position would be closed.
  • This is because 50% of your margin was used up, and your equity value was therefore £500 (half of the margin). 
  • The new ESMA rules require us to close the position. 
  • You would be left with £500 in your account. 
  • Please remember if the market gaps over this level then there is no guarantee to close your trade at this exact 50% level. There is a 'negative balance protection' rule which will be in place from July 28th, however this applies to the account as a whole.

Positions will be closed when the account sees 50% of your margin 'eaten into' whilst neg balance protection just implies you can't lose more money than you have in your account. 

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"We will not be implementing 24 hour or weekend close out rules for ESMA retail clients.  This change will be made on  July 30 from 1pm and will be apply on an account level (both existing and new positions)"

Please could you explain this as it contradicts itself.  In the first sentence it says you will not be implementing 24 hour or weekend close out rules, but then in the next it says this will change on 30th July

Also what are the 24 hour or weekend close out rules?

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Hi @Titus - 24 hour close out rules were previously in place pre-ESMA which meant that you couldn't hold a position which was eating into your margin (negative equity) for 24 hours or more, and therefore you couldn't hold these positions over the weekend either. That rule was removed on July 30th basis ESMA requirements.

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Guest Meet me there

Posted

Hi,

 

What if the broker will break the ESMA margin rule and my status will not be changed on the trading account? 

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