Why my used margin is not static and varies with the position value ? I thought the margin would be calculated at open for a SHORT position and then not change until the position is closedā¦ and P/L should be the only thing changing.
@dropbrick Margin isnāt static - it varies depending on multiple factors like currency swings & market value of your trade.
Example: You buy 10 TSLA at $700 with a 1:2 leverage (50% margin). This means that your initial margin will be $3,500.
However, next day TSLAās at $1,000. That makes your investment worth $10K & thus your marginās now $5,000. Same logic would apply if it went down in value.
Hi I thought margin would be my collateral to open a position ? At least it was like this on another platform I was using.
So before opening a CFD I would get the āloanā to open my position and that would be on a static amountā¦
So if the price goes against my favour I have to consider the margin(blocked funds) on top of P/L ? Itās a bit hard to track on a spread sheet.
Here an example from my CFD Practice account.
Apple. Leverage is 5x. 70 Shares going long. Account is in USD so no currency conversions.
Margin is 3901.24$. A number based/near the Current price. (3901.24 x 5) / 70 = 278.66
It should be based on the Average Price in my view, at least is was like that when I was trading Crypto as once āsignedā the CFD that is the amount of money I agree to borrow to buy/enter my positionā¦ then P/L will affect your margin level. Please help me understand.
@dropbrick Yes, marginās based on the current price, not avg. price. Youāll have more blocked margin when the stock goes up, less if it goes down.
Thanks David for your patience with me!
Hi David,
Thank you for your replies and to clarify this matter to us. I am honestly still a bit confused about it and I explain you why.
Let me resume your previous example about buying 10 BTC at $7k with 1:2 leverage. Your calculations make lot of sense to me, but I have an issue. When I use the platform the blocked funds fluctuate, while in your example they are fixed. So, your calculations donāt reflect what happens in the platform.
Let me recap your calculations below:
ā¢ Total funds at time 0: 50K
ā¢ Margin at time 0: (10x7,000/2) = 35K
ā¢ Status at time 0: [50K / (50K +35K)] x 100 = approx. 59%
ā¢ BTC price 5,500: Status at 50%: [35K / (35K +35K)] x 100 = 50%
ā¢ BTC price 3,750: Status at 25%: (17.5K / 35K) X 50 = 25%
Now, letās run the same calculations, but considering the blocked funds based on the current price of BTC:
ā¢ Total funds at time 0: 50K
ā¢ Margin at time 0: (10x7,000/2) = 35K
ā¢ Status at time 0: [50K / (50K +35K)] x 100 = approx. 59%
ā¢ BTC price 5,500: Status at 50%: [35K / (35K +27.5K)] x 100 = 56%
ā¢ BTC price 3,750: Status at 25%: (17.5K / 18.75K) X 50% = 47%
When the BTC price is 5,500 the blocked funds will be: 10x5,500/2 = 27,500
When the BTC price is 5,500 the blocked funds will be: 10x3,750/2 = 18,750
How showed above, the conclusions are completely different when considering the blocked funds variable based on the current price of the security.
Is my above reasoning correct?
Thank you.
Ado
Thank you for your prompt reply.
One last question please. We know that when the Status of our deposit hit 25% the positions will be closing on a first-in / first-out basis until the Status bounce back to 25% or more.
Now, let us assume that I buy a security with a required initial margin of 500 ā¬ and a leverage of 1:100. I have a deposit of 10,000 ā¬.
What happens if the market goes against me and my initial ā¬ 500 margin decrease to ā¬ 0? I still have 9,500 ā¬ deposit so I donāt have problems to cover the position, but I am unable to calculate the Status of my deposit now because my blocked funds are ā¬ 0 and the position is still open.
So I guess the position will probably be closed by Trading 212 regardless the fact that I still have a large deposit available. If so, when?
Could you please discuss this example? Thank you very much.
Ado.
@Ados83 It goes to 0, your positionās closed & since you donāt have any blocked funds, margin bar = 100%.
Probably I have made a silly question, but it was useful to better understand the logical process connected with these financial instruments.
I reply to my question below.
Following my previous example, we have:
- Initial deposit: 10,000 ā¬
- Buy share X @ 100 ā¬
- Leverage: 1:100
- Quantity: 500
Letās now follow the timeline:
At the time t0 the share price is 100ā¬, Thus:
- Total amount: 500 x 100 ā¬ = 50,000 ā¬
- Profit/Loss: 0 ā¬
- Margin: 1% x 50,000 ā¬ = 500 ā¬
- Status: [10K / (10K +0.5K)] x 100 = 95%
At the time t1 the share price is 80.80 ā¬. Thus:
- Total amount: 500 x 80.80 ā¬ = 40,400 ā¬
- Profit/Loss: -9,600 ā¬
- Margin: 1% x 40,400 ā¬ = 404 ā¬
- Status: [400 / 404] x 0.5 = 50%
At the time t2 the share price is 80.40 ā¬. Thus:
- Total amount: 500 x 80.40 ā¬ = 40,200 ā¬
- Profit/Loss: -9,800 ā¬
- Margin: 1% x 40,200 ā¬ = 402 ā¬
- Status: [200 / 402] x 0.5 = 25%
At the time t2 the position will be closed since the deposit status hit the 25% limit.
We can conclude that, in this example, a movement of 19.6% of the market against our position wiped out nearly our entire deposit.
Therefore, even though the initial margin required to open the position seemed to be small compared to the initial deposit, the entire deposit was at the risk.
Which is why CFDs are such powerful and risky instruments. Leverage increases your profit potential but also your loss potential immensely.
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I just noticed that the questions were already answered and thus cancelled my post.
Hi @David
Total funds refer to the initial deposit or to the Account Value ?
In other words, if I make a deposit of 10k and open 3 positions; as the price oscillates, Total funds will always be 10k, or will it oscillate as well according to Account Value ?
Thank you.