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# Margin Calculations

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This thread contains an account type known as "Limited Risk". Due to regulatory changes this account type no longer applies for European countries. If you have any questions relating to this, or wish to continue the discussion, please start a new thread.

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Hey there,

I'm new in these parts, and am currently working my way through the webinars etc to get caught up on how the IG platform works etc, and am having some difficulties in understanding the logic behind the margin calculations.

So, In no particular order :

• Why is the margin required to open a deal with a guaranteed stop more than the amount of money that is at risk? eg example 1 below, max loss is €100 (+ €12 stop premium), and yet margin required is €622 ?
• Why is the margin required for a normal stop less than a guaranteed stop? eg example 2 below, margin is €396 versus €622 above. Intuitively I'd have thought that as potential losses with a guaranteed stop are less than those with a normal stop, the margin required should be less.
• And finally, the margin required for that same guaranteed stop trade as above, when entered into my limited risk account (rather than the demo account for the first two examples), is a completely different figure €497 versus €622. This seems to be due to the difference between the margin factor of 0.4 in my LR account, and 0.5 in the demo account. Is this expected? If my account wasn't limited risk, would the margin factor be higher in general?

Apologies if I've mangled the intent of some of those questions, but I feel like I'm missing some basic understanding here, and would appreciate any pointers / materials that any might help me.

Thanks,

Michael

PS : the information on margin requirements shown for EUR/USD is consistent with my thoughts that the margin for a guaranteed stop should be equal to the (max) possible loss as per below :

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Great question - thanks for submitting it to Community.

The primary thought process on this comes down to leverage. It's important to understand that 'financial risk' and 'leverage' are separate things, and although the actual risk can be low, if you reduce the margin required on that trade then you're actually increasing the leverage. There are some differences between the Live and Demo account as Demo is also used as a test environment for our dev team as well as for clients.

The three calculations are

No Stop: Bet size x price (in points) x deposit factor (%)

Stop: (Deposit requirement for no stop x slippage factor %) + (bet size x stop distance from current level)

G Stop: The larger figure of the two calculations below:

1. Bet size x stop distance (in points) + limited risk premium
2. Bet size x price (in points) x deposit factor (%)

Up until recently adding a guaranteed stop would reduce the margin required on a trade, however after a recent review although a GStop reduces financial risk, it would actually increase leverage by following this process. This wasn't the beneficial outcome, especially given the recent review on leverage trading by the regulators, so we set out to change our processes.

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The ONLY reason the regulators want to limit leverage is in order to limit the risk of loss. If the possible loss is limited by a GUARANTEED Stop loss, which the regulators want to make compulsory, then the degree of leverage is totally irrelevant. Therefore the  reasoning in the above post makes no sense at all.

##### Link to comment

wrote:

The ONLY reason the regulators want to limit leverage is in order to limit the risk of loss. If the possible loss is limited by a GUARANTEED Stop loss, which the regulators want to make compulsory, then the degree of leverage is totally irrelevant. Therefore the  reasoning in the above post makes no sense at all.

Hi - although I do understand your thinking, the above logic has been put in place based on a very in depth review of regulation and the frame work surrounding leverage for retail clients. We meet very regularly with the regulators and although in theory a clients financial risk is restricted with a guaranteed stop, the fact of the matter still stands - without the above, adding a guaranteed stop still increases your leverage.

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