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12.5% minimum guarantee stop vs 25% minimum margin


ZD

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Evening peeps.

 

Generic question here on margin requirements. 

 

I trade using guarantee stops. When I try to open a position say on Horizon Medical Marijuana ETF, the ticket says the MINIMUM Guarantee stop is 12.5%. So far so good. However when I try to open the position, it fails, because the margin required (non guarantee stop) is actually 25%. 

 

Why bother stating the minimum guarantee stop is 12.5% when the system will only allow me to open a position with 25% margin using Guaranteed/Non Guaranteed stops?

 

Any info appreciated. 

 

Thanks. 

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I appreciate what you are saying, however this effectively relates to the leverage Vs risk which are separate things. Margin is how much leverage you can take, whilst GStop is your max financial risk. In this example we are saying that you can have a leverage of 4:1, however if you wish you can reduce your max financial loss to half of this, i.e. 12.5%.

 

You're right in saying that you're going to need to have more funds than required to cover your max loss, however due to recent regulatory changes we wouldn't be looking to reduce your margin required, which basically increases your leverage. 

 

Put another way the margin required is the most important factor and wouldn't move, whilst allowing flexibility to reduce the max loss via a closer guaranteed stop is better than the alternative (with the alternative being us just moving the Gstop to 25%). 

 

As a bit of background the margin requirements of any asset are set by our risk team based on analysis of a number of things such as shares in issue, free float market cap, historical volatility, market conditions etc. 

 

 

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