leverage calculation & formula

[Guest]

Hi

Recently started with IG Index. Wanted to place a bet on a $10 share, at $100 a point. I had deposited $10,000 in my account to fund this bet. Since you can't go into negative equity this limits my risk to losing $10K.

When I tried to place the bet I had an error saying something along the line of "the exposure was too high for the margin? blah blah blah"

Consequently I manually adjusted the bet down incrementally until I got to $15 a pip at which point the IG platform allowed me to place the bet. The price moved in my favour by 70 points and I made a profit of $1,050 based on the capped bet of $15 per pip. But I should have made $100 x 70 = $7,000. So the cap cost me $6,000 !

This cap on leverage is incredibly costly, annoying and I can't see how it is calculated?

I know people will say the cap is there to protect the small investor, but if I calculate what I can afford to lose and bet accordingly I do not need a nanny state limiting my bets. Last time I checked there was no one policing bets on horses where you can hapilly stick £10K on luckyboy to win at Cheltenham?

Question: please can you give an example how to calculate the maximum bet based on a formula which includes the affect of levarge cap restrictions.

Question: What effective ways are there to increase your leverage? i) deposit more money in your account? ii) open an international spread bet account where ESMA regulations don't apply? Etc etc? Please provide details.

Thanks

Z

Edited August 7, 2020 by ZeliZeli
typo

[pelham]

ZeliZeli - good question, I wish I could answer it... By the way, I am new to IG and want to understand how IG calculates our profits or losses on trades. Do you have any example calculations so I can see all the expenses?

[Caseynotes]

On 07/08/2020 at 08:50, ZeliZeli said:

Hi

Recently started with IG Index. Wanted to place a bet on a $10 share, at $100 a point. I had deposited $10,000 in my account to fund this bet. Since you can't go into negative equity this limits my risk to losing $10K.

When I tried to place the bet I had an error saying something along the line of "the exposure was too high for the margin? blah blah blah"

Consequently I manually adjusted the bet down incrementally until I got to $15 a pip at which point the IG platform allowed me to place the bet. The price moved in my favour by 70 points and I made a profit of $1,050 based on the capped bet of $15 per pip. But I should have made $100 x 70 = $7,000. So the cap cost me $6,000 !

This cap on leverage is incredibly costly, annoying and I can't see how it is calculated?

I know people will say the cap is there to protect the small investor, but if I calculate what I can afford to lose and bet accordingly I do not need a nanny state limiting my bets. Last time I checked there was no one policing bets on horses where you can hapilly stick £10K on luckyboy to win at Cheltenham?

Question: please can you give an example how to calculate the maximum bet based on a formula which includes the affect of levarge cap restrictions.

Question: What effective ways are there to increase your leverage? i) deposit more money in your account? ii) open an international spread bet account where ESMA regulations don't apply? Etc etc? Please provide details.

Thanks

Z

The regulator (ESMA) sets the margin (leverage) limit so to only way to avoid it is to open an account outside of ESMA's reach, that would have been Australia as choice but their regulator is set to follow ESMA's example and lower leverage too.

[jlz]

Hi, please use glowing yellow in your next question, it hurts way more to the eyes.

This is how you can calculate the PL for a position.

To calculate the required margin for a trade you need to look at the market margin factor, i.e Wall Street

You will need to multiply the side price by the margin factor and by the bet size

 

 

[pelham]

Where does that code come from? Is that a function within IG?

[jlz]

1 minute ago, pelham said:

Where does that code come from? Is that a function within IG?

No, it is home made. 

 

 

[jlz]

https://www.ig.com/uk/charges/margin

Click on "See how indices margins are calculated here" at the bottom of the page

[ChristianS]

Also to note that had you drawndown 50% of your margin, your size would have started to be reduced.  So although they say your margin factor is 5%, below 2.5% you would have seen your size being reduced.

[pelham]

I am still trying to understand how profits/losses on trades are calculated because I am not sure about some of the expenses that I am incurring... For example, I was recently charged about A$49 for "Daily FX Interest for 3 day USD/JPY converted at 0.0133" - an someone please explain to me what this means and how it is calculated?

[jlz]

If you look at the Expiry section of that market you will see that they are DFBs (Daily Funded Bets) .

https://www.ig.com/uk/glossary-trading-terms/dfb-definition