[CFD] Upcoming Increase in Margin Requirements - postponed for 01.12.2020

Thanks for the explanation.

My brain is fried. I know that 1350 is correct, but how did you calculate it?

Is it the account value that needs to be multiplied by 2.5, not the blocked funds?

OK. I think I finally understand it now.

You just need to multiply the ACCOUNT VALUE (a.k.a. TOTAL FUNDS) by 1.5 to find out how much funds you need to add to maintain your current margin indicator percentage.

Did somebody already say that?

@obrienciaran, I think I’ve figured out how to do the calculation you need for your calculator if you need any assistance. You mentioned FREE FUNDS in your answer above, but my calculation doesn’t use that figure at all.

Here is my provisional formula to calculate how much funds are required (fr) to achieve any target margin indicator percentage (tm):

fr = ((2.5 * bf) / ((1 / (tm / 100)) - 1)) - av

Where:

fr = funds required
av = available funds
bf = blocked funds
tm = target margin (expressed as a percentage)

Can people test this before anybody relies on it?

Let me try to help explain.

Suppose we are talking about the 1:5 margin requirement. So the Blocked funds amount is initially 1/5 the value of the opening value of the stock. As the value of your shares rises or falls the Blocked funds amount must also rise or fall by one-fifth the amount. If shares are up 5%, then Blocked funds go up 1%. This has to happen, otherwise the margin indicator value would change simply by closing the position and reopening an identical one (ignoring effect of spread). That would be illogical.

And apart from that now I see they two different formula to calculate the margin, I mean this isn‘t right! 212 is playing unfair!

You are right. There are two formula.

  1. If Total funds > Blocked funds, margin indicator is

100% [Total funds]/([Total funds]+[Blocked funds])

  1. If Total funds < Blocked funds, margin indicator is

50% [Total funds]/[Blocked funds]

There has to be a change of formula, since neither would be ideal over a full range of values.

Suppose we deposit 120 and use 100 of it to take a position in shares worth 500. In the graph below, the orange line is formula 1 and blue one is 2. The X-axis shows change in value of our 500 of stock, from down 120 (-24%) to up 300 (+60%). Notice that we use the lower of the two lines as the margin indicator value.

We cannot use blue line (formula 2) the whole way since this exceeds 100% at the right. Using blue to the left of the point where [Blocked funds] = [Total funds] provides the user with more protection and an indicator that moves in a more linear way.

The idea of using more that one formula that match at a point is not unusual. The UK tax code has at least 5 such joins.

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Thanks for taking the time to write such a detailed post! I guess the crux of your answer to my original question is your statement above, which unfortunately I don’t understand. Can you give an example of this closing and reopening scenario please?

I just read the rest of your post. Incredible work!

22 posts were split to a new topic: Working out Margin Requirements Thread

Do the overnight fees charged also reduce accordingly as in essence less money is borrowed due to the change in leverage?

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Consider my example above. Suppose we deposit 120 and use 100 of it to take a position in shares worth 500. Suppose shares go up 10% and we do not change blocked funds. Margin indicator would be

(120+50)/(120+50+100)

If we sell the position and repurchase at this price level the required blocked funds will be 1/5 of 550 = 110 and margin indicator will be

(120 + 50)/(120+50+110)

which is different.

Was wondering about this too… I am already at a loss, does this mean my loss is doubled?

Are overnight fees changed accordingly as less leverage is being used? so less money borrowed?

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anyone concerned about this or just happy to pay away :slight_smile: ?

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I am not an expert in what actually happens. But I would expect that if you hedge the risk of an open short or long position in 10 shares that is 10 shares, irrespective of whether you have blocked funds covering 1/2 or 1/5 of their value. The money you leave in your account overnight earns insignificant interest compared to what it costs for Trading 212 to hedge the risk that the value of your position will change overnight.

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@David Can you clarify a few things, firstly via email I have been told that the changes take place at 2:30 GMT where you state 3:30 GMT.

You have also stated that people are being compensated for losses that have been due to these ridiculous spreads. How we do get this process started ?

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Does anyone know until the margin requirements will be 50% and if after this period our existing positions will return to 20%?

Nothing confirmed yet I believe. They did mention it will be temporary though and then revert back thereafter.

this is dirty from trading 212. My assumption is that trading 212 makes money when the traders have losses. the current catalyst supporting upward trends in the market. This is going to go on for the next couple of months at least. Trading212 is reducing leverage to limit the winning trades.

A company that does not care about their customers interest will not be successful in the long run.

@Supraman Extended hours trading will be on as usual, the only exception was yesterday.

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Thanks for the reply. I can see that the market hours are back to normal now!

No T212 doesn’t make more money from customer losses.

T212 makes money from the spread for CFDs (not invest or ISAs). T212 tries to hedge against the trades that customers make - if they are not able to hedge due to market volatility (and if they don’t have large reserves) then the only way they can reduce risk is increase the spreads and swap rates and reduce the leverage margins.

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If you have time, would you mind explaining how hedging works? That’s a definite gap in my knowledge.