ESMA and 50% margin close out rule

[cate]

James, or anyone else at IG,

I'm not clear about the "slightly amended 50% margin close out rule" that is mentioned in the letter that came from IG . Could you give us an example of what it will mean? For example, suppose I have £5,000 in the account and have just one position open and that requires £300 margin. If the position moves £150 (half the margin requirement) against me, will I be closed out? It seems quite mad (but then so does a lot of ESMA).

Thanks!

Cate

[Kodiak]

Would it be possible (probably not?) to use the new "ESMA settings" on demo account starting now to get used to and try out the new settings?

 

 

[Kodiak]

3 hours ago, cate said:

James, or anyone else at IG,

I'm not clear about the "slightly amended 50% margin close out rule" that is mentioned in the letter that came from IG . Could you give us an example of what it will mean? For example, suppose I have £5,000 in the account and have just one position open and that requires £300 margin. If the position moves £150 (half the margin requirement) against me, will I be closed out? It seems quite mad (but then so does a lot of ESMA).

Thanks!

Cate

I think in this case you can have a loss of 4849 before they close anything, you still have 151 free margin?

but not sure

[cate]

Thanks Kodiak, I hope it's like that. I'm hoping someone from IG will confirm for us.

Best wishes,

Cate

[JamesIG]

Hey all. You can see our page on Spread Betting and CFD margin under ESMA here. 

If you had a £5000 starting balance and opened a position with a margin of £300 the following would happen.

At a loss of £4701 (99%) we would aim to send you a notification email.
At a loss of £4775 (75%) we would aim to send you another notification email.
At a loss of £4850 (50% margin, i.e. the market has moved against you and your loss is equal to your spare cash you had on the account, plus half the margin) we would start to close positions.
Your account would be left with £150 (50% of the initial margin used to open the position).

[cate]

Ah thanks James, that's very helpful. 

Best wishes,

Cate

[Guest Mark]

What in a case of a guaranteed stop where the capital equals the margin for the guaranteed stop?
Will the position be closed at 50% between entering the position and the garanteed stop?
As normally one would not get a margin call in that case.
In case of Cryptocurrencies (50% margin) that would mean that you would have to put 100% down if your whole account would be commited to one trade, right?

Thanks in advance

[Guest FCapital]

How does it work with leveraged accounts activated with collateral? 

I found this statement from your website: " If you are using the contents of your share portfolio as collateral to cover your margin requirements in your leveraged account then we can allow equity to drop to -50% of your collateral level before we start closing positions. We can’t guarantee that level, though, so you may find positions are closed before or after your equity reaches -50%." 

This is pretty vague, so can you explain a bit more about it with an example?  

 

 

[JamesIG]

On 7/10/2018 at 11:51 AM, Guest Mark said:

What in a case of a guaranteed stop where the capital equals the margin for the guaranteed stop?
Will the position be closed at 50% between entering the position and the garanteed stop?
As normally one would not get a margin call in that case.
In case of Cryptocurrencies (50% margin) that would mean that you would have to put 100% down if your whole account would be commited to one trade, right?

Thanks in advance

A guaranteed stop means that we guarantee to take you out of a particular trade at a particular level if the market gaps over it. It doesn't guarantee that you will be able to hold the trade to that level. Once your losses are at 50% margin then we will look to close our your position basis the new ESMA rules.

 

[JamesIG]

12 minutes ago, Guest FCapital said:

How does it work with leveraged accounts activated with collateral? 

I found this statement from your website: " If you are using the contents of your share portfolio as collateral to cover your margin requirements in your leveraged account then we can allow equity to drop to -50% of your collateral level before we start closing positions. We can’t guarantee that level, though, so you may find positions are closed before or after your equity reaches -50%." 

This is pretty vague, so can you explain a bit more about it with an example? 

Going forwards we won't have collateral linked accounts for non-professional clients under the ESMA umbrella. If you have a professional IG account (or are outside the region) you are exempt from this.

From a collateral point of view on a professional account, then the margin basically works the same way, however it is simply used on the margin side of things. You can see a greater run down example here.

 

[Guest Malcom Pat]

Hi there, I just wanted clarify how this would work for a very different type of case to those mentioned above.

Assuming i have £200 in cash in my account, and were to place it all into a trade position worth £1000, say for eg a spread bet on 1 share worth £1000.

Am I right in saying that, given that ALL the equity in my account is tied into the 1 trade, ie no other cash balance, that you obviously wouldnt let the share price drop to 600 as I would then be at minus 200 equity.

In that situation, at what share price would the trade be automatically closed out at?

[Guest Arruda, C]

On ‎05‎/‎07‎/‎2018 at 17:03, JamesIG said:

Hey all. You can see our page on Spread Betting and CFD margin under ESMA here. 

If you had a £5000 starting balance and opened a position with a margin of £300 the following would happen.

At a loss of £4701 (99%) we would aim to send you a notification email.
At a loss of £4775 (75%) we would aim to send you another notification email.
At a loss of £4850 (50% margin, i.e. the market has moved against you and your loss is equal to your spare cash you had on the account, plus half the margin) we would start to close positions.
Your account would be left with £150 (50% of the initial margin used to open the position).

Hey all.

Unless I'm missing something here, where does it 99% comes into play and on what? 99% of £300 is £297 but we're seeing £4,701! Or even 99% of £4,700 "remaining equity" is £4,653! So, I'm at a loss on how £4,701 was calculated.

I can see how the £4,775 and £4,850 was achieved but the same logic doesn't apply to the £4,701 value. From what I can see, with the new rules basically one looses all their remaining equity plus up to 50% of it's required margin.

I'd appreciate some clarity on this please.

Thank you.

Carlos 

[JamesIG]

10 hours ago, Guest Arruda, C said:

Hey all.

Unless I'm missing something here, where does it 99% comes into play and on what? 99% of £300 is £297 but we're seeing £4,701! Or even 99% of £4,700 "remaining equity" is £4,653! So, I'm at a loss on how £4,701 was calculated.

I can see how the £4,775 and £4,850 was achieved but the same logic doesn't apply to the £4,701 value. From what I can see, with the new rules basically one loses all their remaining equity plus up to 50% of it's required margin

You are absolutely right on this one. I was too lax in my explanation when discussing mathematical examples which obviously given the example and use of figures I shouldn't have been. The 99% actually refers to 99.99% of the £300. In other words, as soon as the initial £300 margin  starts to get 'eaten' into (and not necessarily by a whole pound either). In the examples I rounded to the nearest percentage and nearest whole pound sterling. 

I won't edit the original example as this wouldn't give transparency to the remaining thread, but hopefully this clarifies. 

 

[Guest RichB-Trader]

On 04/07/2018 at 20:45, Kodiak said:

Would it be possible (probably not?) to use the new "ESMA settings" on demo account starting now to get used to and try out the new settings?

 

 

Hello,

 

When the ESMA kicked in the margin rates seemed to change, is this correct. i.e if I move to a Live account I will see no margin or functionality difference between the two. i.e I won't get closed out in a live account any different to what would happen in a Demo? Thanks.

[JamesIG]

Hey - I've just checked and can see that margin % are the same on both demo and live. Therefore they should be the same across the board. Double check margin requirements based on asset type if you would like to confirm for yourself - hope this helps. (e.g. below FTSE on Demo and Live - kinda odd to show the same image, but these are in fact taken from different environments.) 

[Guest trader1900]

Hi there,

I am wondering if someone who resides in Europe can open an account with IG using a different office lets say in Australia or Switzerland in order to avoid the increased margin requirements? 

Many thanks

[Caseynotes]

Hi trader1900,  best bet to ask the office in the prospective country directly, see below the link to the comparison page with linked info on how to contact them >

https://www.ig.com/uk/compare-our-leveraged-trading

 

[Guest RichB-Trader]

Hello all,

 

Am I right the "main" change is the margin needed to cover trades. For example to do around 8 trades I needed £20k of margin on my typical equities. Now I need more like £35k. As long as you can get the cash together it doesn't seem to drastic, or am I missing something? 

[JamesIG]

That is a major one @RichB-Trader

You can see further info in the two links below 

 

[Guest Questionnaire]

There is a 50% close out level set on your account. If you have a £5,000 cash balance and you were using £2,500 in margin reserved to place the trades that were live, at what level of equity would your account be at for the 50% close out level to take effect?

£1,250

£2,500

£3,000

£ 0