Hello, would like to request tutorial vid on margin call calculations-I know there are a lot of posts re: this on forum but some seem to conflict (or may just be me) but I’d like to see examples, % etc in visual medium, if you’d consider this for a suggestion. Thanks either way.
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Me2… I’ve stopped playing with CFDs (real stocks only now), partly because the calculations were so opaque. I’d love to see clearly laid out how all of the numbers are calculated: if I could fully understand what I’m doing and what the possible outcomes and thresholds are, I might even be enticed back.
Thanks for input-least I know others in same boat
My suspicion is the CFD side is kept deliberately indecipherable - that “76% of retail investor accounts who lose money when trading CFDs with this provider” surely adds up to a nice slice of revenue…
Yeah, could be-but while I understand they’ve got to/want to make a profit, I’d want to know what’s what before I have a stab (+I m willing to try, already have £ loaded in CFD account ready to go) as I can picture just making an order and getting account wiped out in instant. If they’d do vid with round number (£100, £1000 etc) to start+show you what looked like to use, say, 20% of that on single CFD (illustrating the risks to remaining 80%of account etc) and another vid segment where you place whole £100/£1000 on single CFD, it’d be useful? Ha, bet you’re sick of this to-and-fro, am only carrying on in hopes the T212 people see thread and do vid.
Doesn’t even need to be a video.
Every number on this screen: what it means, how it’s calculated, with examples. That’s all I need.
Ok here goes my best explanation of what the numbers mean and how the % is calculated. Some of my terminology may be incorrect so bear with me.
Blocked funds - this is the margin for all your positions. Eg if the FTSE was at £6000 and you bought 3 units at 1:20 or 5% margin your blocked funds would be £900. This figure isn’t fixed though, if the FTSE went to £6200 your blocked funds would rise to £930.
Account value = Blocked Funds + Free Funds
Free funds = Amount invested + value of holdings (this could be negative) - Blocked Funds.
The % are calculated as follows
Account value/(Account value + blocked funds)
However, when this figure falls below 50% ie when the account value = blocked funds this calculation changes to:
(Account value/blocked funds) * 0.5. ie if you had an account value of ÂŁ1200 and blocked funds of ÂŁ1400 your account would be at 43%.
Note, you get margin called at <45%
Your positions will get closed when you drop to <25%. I always work this out as if your account value is half of the blocked funds positions will get sold.
I hope this gives some clarity. I’ll admit I’ve picked this all up myself through trial and error and some help from the forum. There should really be a bit more of a guide though but basically CFDs are an easy way to lose a lot of money quickly. But you can also make money as well. But it’s best to know what you’re getting into before you start.
Good luck.
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Hello-thanks a lot for your time/effort-I am late saying thanks as I wanted to combine the thanks with any further questions I may have had but am prob just best testing formulas on paper then having a stab. 1 question though-when margin called at 45%, what actually happens? Is it just a heads up off T212 or is there penalty/action at that point?
Hi there
No worries and thanks for the thanks. Lol.
When you get called at 45% nothing happens at all. I’ve left it many times and got away with it as things have moved in my direction. However, the nature of CFDs is that it doesn’t take a lot for that 45% to become 25% very quickly.
If you want to check your understanding of the calculations, my advise would be, go into the practice account, makes so trades in £ only (to remove currency exchange effects), let’s things play out for a bit, take a screenshot of the summary screen at any moment in time and check your calculation results of those figures correspond with what it’s showing. This will give you the confidence that you do understand how it works.
Good luck.
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This formula does not work here, does it? I started with 1000 and invested it all. The position currently has a 17.89 loss. Also, note that the blocked funds figure stays at 1000, rather than increasing.
Are you sure? Note that here the amount of blocked funds does not change as this position moves into profit, though now the above formula works. Blocked funds also did not change when position was showing a loss.
The key thing to look at, as I understand it, is Account value / Blocked funds. Margin call occurs when this is less than 1, and positions close when it is less than 1/2 (equivalently margin at 25%). If at this point I close the above position, when account value is 500, I will have lost 50% of my 1000 deposited cash.
Hi Richard. I agree with what you’re saying. The free funds will never show a negative value when it drops below zero, so that’s what’s happened in your first calc.
As for the blocked funds not changing im not sure what’s going on there. It definately changes all the time in the “real” account as the value of your positions changes.
Like I said, this is just what I’ve worked out and picked up through experience. It would be good to get a complete definition of terms and the formulas for the calculations explained by 212 themselves.
You are correct. I found this helpful here. and also this example CFD margin calls.
Here is the calculation in Mathematica for 1000 deposited, and then 900 used for margin to take position at 5:1 leverage on stock valued 4500. We see that margin call will occur when you have lost 125, and stop out will occur when loss reaches 611.
m = 900;
Solve[(1000 - x)/(1000 - x + m - x/5) == 1/2, x]
Solve[(1/2)(1000 - x)/(m - x/5) == 1/4, x] // N
{{x -> 125}}
{{x -> 611.111}}
Suppose you use only 300 margin to take a position on 1500. Then margin call will occur when loss reaches 875, and stop out will occur when loss reaches 944. This demonstrates that although the original position is small, it can put almost all of your deposit at risk. The lesson is that you must use your own stops and not rely on the automatic negative balance protection.
The FCA required risk warning means that: measured over 1 year, and recalculated every 3 months, 76% of accounts lose money.
- It does not mean that 76% of positions are closed at a loss, or that ones closed at a loss are of the same magnitude as those closed at a gain.
Consider a coin that show tails with probability 0.51, a small bias from 0.50. The probability that in 1400 tosses there are more tails than heads is 0.765.
n = 1400; p = 0.51
Sum[Binomial[n, k] p^k (1 - p)^(n - k), {k, n/2+1, n}]
0.764796
-
The 76% figure tells us little about a CFD platform provider’s actual profit. It could be, for sake of argument, that the mean loss in a losing account is 1,000. But the mean gain in a winning account is 3,000. Net to the provider would be
0.76 x 1000 - 0.24 x 3000 = 760 - 720 = 40per account. -
One has to think, plan and understand, but CFDs are not indecipherable. There is after all a practice account, staff help to explain, and users like us are free to share insights on this community.
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Hi, sorry for necroposting (some kind…).
I found answers to my questions so I delete my comment, but just one thing about blocked funds, to be sure. In @David calculation, blocked funds are fixed
So I made my excel calculation, using the formula below
- Over 50% → [Total funds / (Total Funds + Blocked funds)] x 100%
- Under 50% → (Total funds / Blocked funds) x 50%
Deposit $1500, share price $450, 10 shares, column status using formula =1500/(1500+900), then =1150/(1150+830) etc… and the last column is with fixed blocked funds ($900) for all rows. Of course, after 50%, I used (Total funds / Blocked funds) x 50% or =(300/660)*0,5
| 1500 | 450 | LOSS | 10 | 20% margin | Status | Fixed blocked ($900) |
|---|---|---|---|---|---|---|
| acc value | price | blocked | ||||
| 4500,00 | 900,00 | 63% | 63% | |||
| 1150,00 | 415 | 350,00 | 4150,00 | 830,00 | 58% | 56% |
| 1000,00 | 400 | 500,00 | 4000,00 | 800,00 | 56% | 53% |
| 800,00 | 380 | 700,00 | 3800,00 | 760,00 | 51% | 47% |
| 700,00 | 370 | 800,00 | 3700,00 | 740,00 | 47% | 39% |
| 500,00 | 350 | 1000,00 | 3500,00 | 700,00 | 36% | 28% |
| 300,00 | 330 | 1200,00 | 3300,00 | 660,00 | 23% | 17% |
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