The margin loan: The margin loan is the amount that the investor borrows from the broker in order to purchase the securities.
The margin deposit: The margin deposit is the amount of equity that was contributed by the investor in order to purchase the securities in a leveraged account.
The margin requirement: The margin requirement is the minimal amount that the investor needs to deposit, and is expressed as percentages of the current market value of the transaction.
The deposit can be bigger or equal to the margin requirement.
As seen in the following equation:Margin Loan + Margin Deposit = the Market Value of the TransactionMargin Requirement = Margin Requirement =/< Margin DepositIf an investor is interested in trading on margin, he must first open a margin account and sign all of the related agreements. While trading on margin, an investor must always abide by the brokers’ margin rules and demands. failure to do so may require the client to deposit more funds or close a part or all of his positions. ”Initial Margins” and “Maintenance Margins”
The Federal Reserve and the self-regulatory organization (SRO’s), such as NYSE and FINRA, have clear rules as to leverage trading. While trading with an American broker, the “Regulation T” law allows investors to borrow up to 50% of the value of purchased securities. The cash amount that the investor has to pay for the securities is called “Initial Margin”.
The second type of margin is called “Maintenance Margin”. Regulation requires every leverage account to hold a maintenance margin of at least 25% of the investor securities value. Day traders in the US markets have a minimum requirement of at least $25,000 or 25% of the securities value in the account if it exceeds $25,000. If at any time an account drops below the maintenance margin requirement, the client must deposit funds to the account, or close some of his positions. , the broker might randomly close some of the positions in the account. The brokers can also define their requirements for minimal margins, which are called “the house requirements”. Certain brokers choose to ease the terms of the loan more than others, and the terms of the loans may change from one client to the other. However, the brokers must always act in the course of the parameters of the margin requirements which were set by the regulators (such as FINRA). Not all securities can be leveraged.
Buying with leverage might be a “double edged sword” that can translate into bigger profits or bigger losses. In the volatile markets, investors who borrowed from their broker, may need to supply additional margin if the price of the share changes fast. In these cases, the broker might change the margin requirements after sending a warning email. This is why monitoring your account while trading on margin is very important.
The margins for commodities are the amount of equity that was contributed by the investor in order to support the futures. The margin requirement for futures and future options are calculated according to an algorithm that is known as SPAN. SPAN (the analysis of a regular leveraged portfolio) estimates the risk in the portfolio by calculating the worst-case scenario that a diversified portfolio may reasonably lose throughout a defined period of time (usually one day).
This is done by calculating the profits and the losses that may happen in different market conditions. The most important part of the methodology of the SPAN is the array of risk, which is a set of numeric values that estimates how a certain future shall profit or lose under certain conditions. Each scenario is called a “risk scenario".
Just like securities, commodities also have initial margins and maintenance margins. These margins are usually set by the exchanges as a percent from the futures which is based on the volatility and the price of the futures. The initial margin requirement for futures is an additional amount that an investor has to put as collateral in order to open a position. In order to be able to buy futures, an investor must meet the initial margin requirement.
Commodities maintenance margin is the amount an investor must maintain in his account in order to support the futures, and it represents the lowest value to which the account can reach before the investor needs to deposit additional funds.
Commodities positions are checked on a daily basis, and the account is adjusted to each profit or loss that occurred. Since the price of basic commodities changes, it is possible that the value of the commodities may decline to a point that the balance of the account descends below the required value for maintenance. In such a case, the broker may close some of the positions in the account.
MEXEM uses real-time margins in order to allow the investor to know and control the account level of risk. The margin system checks the required margin for the account every few seconds and takes new and existing positions under consideration, in order to prevent loses from the investor’s side as well as from the broker’s side, which allows MEXEM to take such low commissions. You can check your required margins at any time from the Account Window on the trading platform.
Just like securities, commodities also have initial margins and maintenance margins. These margins are usually set by the exchanges as a percent from the futures which is based on the volatility and the price of the futures. The initial margin requirement for futures is an additional amount that an investor has to put as collateral in order to open a position. In order to be able to buy futures, an investor must meet the initial margin requirement.
Commodities maintenance margin is the amount an investor must maintain in his account in order to support the futures, and it represents the lowest value to which the account can reach before the investor needs to deposit additional funds.
Commodities positions are checked on a daily basis, and the account is adjusted to each profit or loss that occurred. Since the price of basic commodities changes, it is possible that the value of the commodities may decline to a point that the balance of the account descends below the required value for maintenance. In such a case, the broker may close some of the positions in the account.
It is important to remember that the calculation of the securities that we perform in the preliminary “Reg T” accounts are executed at the end of the day at (15:50 EST) as part of MEXEM’s Special Memorandum Account (SMA).
We perform the calculations of margins in real-time and throughout the trading day.
In addition, to understand the closure of transactions by MEXEM, you can use the following calculations.
During the trade
In real-time during the trade day
At the end of every trade day
After the trading day
While opening a new position we implement:
- The preliminary and minimal requirement for equity
- Examining the leverage for existing transactions
- The minimal margin requirement
To open a new position in a leveraged account, you are required to have a minimum amount of $2,000. If you don’t meet this preliminary requirement, you won't be able to open a new position.
Initial margin calculation time
Upon a submission of an order, a real-time check of the funds that are available in the account is conducted. The order shall be executed if there is enough available money in the account. The number of available funds must be larger than the initial margin requirement.
We perform the following calculation in order to guarantee that the value of the transactions will not exceed 30 times more than the value of the liquidity minus the value of future options.
Throughout the trading day, we execute different calculations in real time based on the margins in your account. These are the calculations that are performed for the margins during the trading time:
-Real-Time Maintenance Margin Calculation
-Real-Time Position Leverage Check
-Real-Time Cash Leverage Check
-Real-Time SMA Calculation
-Soft Edge Margining (SEM)
-Real-time maintenance margin calculation
MEXEM's Real-Time Maintenance Margin calculations for securities is pictured below. The maintenance margin used in these calculations is the maintenance margin requirement, which is listed on the product-specific Margin pages. In the calculations below, “Excess Liquidity” refers to excess maintenance margin equity
To guarantee that the securities gross position value doesn’t exceed the net liquidation value minus the future options value by more than 50 times, you can examine the leverage in real time. This limitation is designed to reduce the risks that are involved in large transactions.
Scroll to topMEXEM makes an additional leverage check on cash to ensure that the total FX settlement value is no more than 250 times the Net Liquidation Value as shown below.
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Another examination of the leverage over the cash is performed to guarantee that the total FX is no more than 50 times the net value of liquidity.
Decreased Marginability Calculations:
We reduce the marginability of stocks for accounts holding concentrated positions relative to the shares outstanding (SHO) of a company. For Margin securities accounts, this algorithm increases the margin requirement for stock positions exceeding 1% of the published SHO from its default to 100% (in other words, decreases the amount of money that can be borrowed against a stock position toward zero). At 5% concentration, positions have a 100% margin requirement.Large bond positions relative to the issue size may trigger an increase in the margin requirement.
The review of bond marginability is done periodically to consider redemptions and calls, as well as other factors, which may affect the remaining liquidity of the particular bond instrument. Less liquid bonds are given less favorable margin treatment
SEM:
We will automatically liquidate when an account falls below the minimum margin requirement. However, to allow a customer the ability to manage risk prior to a liquidation, we calculate Soft Edge Margin (SEM) during the trading day. From the start of the trading day until 15 minutes before the close of the trading day, Soft Edge Margin allows for an account’s margin deficit to be within a specified percentage of the account’s Net Liquidation Value, currently 10%. When SEM ends, the full maintenance requirement must be met. When SEM is not applicable, the account must meet 100% of maintenance margin.
Soft Edge Margin start time of a contract is the latest of:
The market open, the latest open time if listed on multiple exchanges. Or the start of liquidation hours, which are based on trading currency, asset category, exchange and product.
Soft Edge Margin end time of a contract is the earliest of:
- 15 minutes before market close, the earliest close time if listed on multiple exchanges.
- Or 15 minutes before the end of liquidation hours.
- Or the start of Reg T enforcement time.
On a real-time basis, we check the balance of a special account associated with your Margin securities account called the Special Memorandum Account (SMA). We calculate a running balance of your SMA throughout the trading day, then enforce Regulation T initial margin requirements at the end of the trading day. No cash withdrawal will be allowed that causes SMA to go negative on a real-time basis.
Calculations of End of day SMA
As described above, we calculate SMA in real time throughout the trading day, but we enforce Regulation T initial margin requirements (typically 50% for stocks) at the end of the trading day. Whenever you have a position change on a trading day, we check the balance of your SMA at the end of the US trading day (15:50-17:20 ET), to ensure that it is greater than or equal to zero.
We use the following calculation to check your SMA balance in real time and apply Regulation T initial margin requirements to securities that can be purchased on margin. Note that this is the same SMA calculation that is used throughout the trading day. In the first calculation, “today’s trades initial margin requirements” are added for SELL orders and subtracted for BUY orders, and are based on US Regulation T Initial Margin requirements.
The SMA is calculated according to the following rules:
- Cash deposits are credited to SMA.
- Cash withdrawals are debited from SMA.
- Dividends are credited to SMA.
- Traders are netted on a per contract per day basis.
- Realized pnl, i.e. day trading pnl are posted to SMA.
- Commission and tax are debited from SMA.
- All trades (one per contract) are posted to the portfolio at the end of the trading day, if RegT Margin of the portfolio increases, the increased amount is debited from SMA, if RegTMargin of the portfolio decreases, the decreased amount is credited to SMA. The current price of the Underlying security, if needed, is used in this calculation.
- Option sales proceeds are credited to SMA.
- Premiums for options purchased are debited from SMA.
- The change to SMA resulting from trades is effectively the change in RegT Equity minus the change in RegTMargin.
- Universal transfers are treated the same way cash deposits and withdrawals are treated.
- Market appreciation: If RegT Excess of a margin account is greater than SMA at the close (normally 16:00 US/Eastern), SMA is set to equal to RegT.
- Excess. Note that SMA balance will never decrease because of market movements. Reg T Excess = 0 or (RegT Equity – RegT Margin), whichever is greater.
- Currency trades do not affect SMA.
- Fees, such as order cancellation fee, market data fee, etc. do not affect SMA.
- Exercises and assignments (EA) are reported to the credit manager when we receive reports from clearing houses. They will be treated as trades on that day. For example, on expiration, we receive EA notices on the weekend; these trades have Friday as trade date in the clearing system, but they will be treated as Monday’s trade for SMA purposes by the credit manager. Exercise requests do not change SMA. DVP transactions are treated as trades.
Stocks have additional margin requirements when held overnight. For overnight margin requirements for stocks, click the Stocks tab above.
Scroll to topWe use the following series of calculations to determine the last stock price of a position before we begin to liquidate that position. Note that this calculation applies only to single stock positions.
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As indicated on the Margin Calculations page, we estimate the amount of excess Liquidity (margin excess) in your Margin account in real time. If your excess Liquidity balance is lower than zero, we will liquidate positions in your account in order to bring the Excess Liquidity balance up to at least zero.
You can use the following estimation to regulate how much stock equity we will liquidate in your Margin account to bring your Excess Liquidity balance back to zero. Note that this estimation applies only to stocks.
You can keep track of most of the values in the estimations described on this page in real-time in the account window in Trader Workstation (TWS).
We apply margin calculations to commodities as follows:
At the time of a trade
In real-time during the trade day
At the end of every trade day
After the trading day
When you open a new position, we apply the following:
Initial Minimum Equity Requirement
Time of Trade Initial Margin Calculation
You are required to have a minimum of $2,000 or USD equivalent of commodities Net Liquidation Value to open a new position. In a commodities account, you can satisfy this requirement with assets in currencies other than your base currency.
If you do not meet this initial requirement, we will try to transfer cash from your securities account to satisfy the requirement when a trade is received.
If you do not have the minimum of $2,000 or USD equivalent of commodities Net Liquidation Value, or if you cannot satisfy the initial minimum equity requirement with assets in another currency, or if there is not enough cash in your securities account to satisfy the requirement, you will be unable to open the new position in your commodities account.
Upon submission of an order, a check is made against real-time available funds. If available funds, after the order request, would be greater than or equal to zero, the order is accepted; if available funds would be negative, the order is rejected. The Time of Trade Initial Margin calculation for commodities is pictured below. The initial margin used in this calculation is set by the individual exchanges and listed on the Futures & FOPs Margin page:
Initial Minimum Equity Requirement
Time of Trade Initial Margin Calculation
Throughout the trading day, we apply the following estimations to your securities account in real-time:
- Real-Time Maintenance Margin Calculation
- Soft-Edge Margining
MEXEM's Real-Time Maintenance Margin calculation for commodities is shown below. The maintenance margin used in this calculation is set by the individual exchanges and listed on the Futures & FOPs Margin page. In the calculations below, “Excess Liquidity” refers to excess maintenance margin equity.
Furthermore, any account that has an unfavorable Net Liquidation Value on a trade date or settlement date basis will be liquidated, It should be noted whereas futures settle each night, futures options are usually treated on a premium style basis, which means that they will not settle until the options expire or are sold.
Therefore, for certain futures options positions and combination futures, there may be an imbalance in cash flow which could potentially cause cash to go negative even though Net Liquidation Value is positive. Furthermore, there are a few options where local custom is to cash settle the option each night at the clearing house (e.g. HKFE HSI Options), but we might choose to margin these options on a premium style basis.SEM:We will automatically liquidate when an account falls below the minimum margin requirement. However, to allow a customer the ability to manage risk prior to a liquidation, we calculate Soft Edge Margin (SEM) during the trading day. From the start of the trading day until 15 minutes before the close of the trading day, Soft Edge Margin allows for an account’s margin deficit to be within a specified percentage of the account’s Net Liquidation Value, currently 10%. When SEM ends, the full maintenance requirement must be met. When SEM is not applicable, the account must meet 100% of maintenance margin.
- The market open, or the latest open time if listed on multiple exchanges;
- Or the start of liquidation hours, which are based on trading currency, asset category, exchange and product.
Soft Edge Margin end time of a contract is the earliest of:
- 15 minutes before market close, or the earliest close time if listed on multiple exchanges:
- Or 15 minutes before the end of liquidation hours
If an account falls below the minimum maintenance margin, it will not be automatically liquidated until it falls below the Soft Edge Margin. This allows a customer’s account to be in margin violation for a short period of time. Soft Edge Margin is not displayed in Trader Workstation.
Once the account falls below SEM however, it is then required to meet full maintenance margin. Please note that we reserve the right to restrict soft edge access on any given day, and may eliminate SEM completely in times of heightened volatility.
Real-time liquidation occurs when your commodity account does not meet the maintenance margin requirement.
Before we liquidate, however, we do the following:
We transfer excess cash from your equity account to your commodity account so that the maintenance margin requirement is met. To help you stay on top of your margin requirements, we provide pop-up messages and color-coded account information to notify you that you are approaching a serious margin deficiency.
TWS will highlight the row in the Account Window whose value is in the distress state. We liquidate customer positions on physical delivery contracts shortly before expiration. Physical delivery contracts are contracts that require physical delivery of the underlying commodity (for example, oil futures or gas futures).
Liquidation typically starts three days before the first notice day for long positions and three days before the last trading day for short positions. Certain contracts have different schedules.
Some futures products are margined at 50% of the normal margin requirements during normal liquid trading hours for each product type. Each day at 15 minutes before the close of the normal trading session for a product, margin requirements will revert back to the 100% requirement until the opening of normal trading hours the next day. Margin requirements will always be applied at 100% for all spread transactions. For a complete list of products that we margin at 50%, see the Futures – Intraday Margin Requirements page under the Futures & FOPs tab above.
Scroll to topThis section contains the calculations of margins for a Reg T Margin Accounts. All margin requirements that are stated in this page are the minimum requirements. The following tabulation shows the initial margins for stocks (while submitting the trade), the maintenance margins (while holding the stocks) and end of the day margins.
Long Position:
- The initial margins are 25% of the value of the securities.
- Maintenance margins are like the initial margins.
- The initial margins at the end of the day are 50% of the value of the securities.
- For cash account – 100% of the value of the securities.
Short Position:
The initial margin is 30% of the value of the securities.
Maintenance margins:
- 30% of the value of the securities if the price is higher than $16.67.- $5 per stock if the price is higher than 5$ but lower than 16.67$- 100% of the value of the securities if the price is lower than $5.- $2.50 per stock if the price of the stock price is equal to or lower than $2.50.
Special shares:
We may reduce the collateral value of securities (reduces marginality) for a variety of reasons, including:- Small market capitalization or small issue size low liquidity in the collective primary/secondary exchanges.- Involvement in tenders and other corporate action.- Changes in marginality are generally considered for a specific security. However, in cases of concerns about the viability or liquidity of a company, marginality reductions will apply to all securities issued by, or related to, the affected company, including bonds, derivatives, depository receipts, etc.
See the section on Decreased Marginality Calculations on the Margin Calculations page for information about large position and position concentration algorithms that may affect the margin rate applied to a given security within an account and may vary between accounts.
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