Margin Liquidation External Presentation

8/8/2019 Margin Liquidation External Presentation

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Margin Monitoring

& Liquidation

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shall not be copied, reproduced or distributed (in whole or in part) or disclosed to any other person.

The recipient further agrees, on request, to return this document and any materials received from

Spreadco Ltd relating to the information contained in this document



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Risk Warning

• Trading leveraged markets involves both high leverage and highrisk and therefore may not suit your individual trading or investmentobjectives. Your losses may exceed the value of your initial deposit

and you may be required to make further deposits at short notice.You should only trade with capital you can afford to lose. Beforetrading, ensure that you understand the risks involved and, ifnecessary, seek the advice of an Independent Financial Adviser.



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Contents

SECTION 1`

Definition of Initial Margin

SECTION 2

How to Calculate Initial Margin

SECTION 3

Margin Calls

SECTION 4

Liquidation Levels

SECTION 5

The Liquidation Process – Consolidated Position

SECTION 6

The Liquidation Process – Single Position

SECTION 7

Key Concepts



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SECTION 1SECTION 1

Definition of Initial MarginDefinition of Initial Margin



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• The Initial Margin (IM) is an amount of money that will be debitedfrom your account when the CFD transaction is entered.

• It represents the security deposit value that you are required to holdwhen you first open a CFD position.

• IM is a percentage of the contract value and will represent theassessed risk value



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• IM is a form of risk control based on the volatility in the market if themarket moved adversely against you.

• IM are returned when positions are closed.

• For FX position, the initial margin value is expressed in the firstcurrency of the currency pair.



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SECTION 2SECTION 2

How to Calculate Initial MarginHow to Calculate Initial Margin



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How to Calculate Initial Margin

Example:

For 100,000 USD/JPY, the initial margin required will beUS$1,000 if margin requirement is 1%.

100,000 x 1% = $1,000

For 10 Dow Jones at 11,000, the initial margin requiredwill be US$1,100 if the margin requirement is 1%

11,000 x 10 x 1% = $1,100

The percentage of Initial Margin requirement depends on the product.



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SECTION 3SECTION 3

Margin CallsMargin Calls



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Margin Call

Positions are monitored on a Markto Market basis. This means thatyour profit/loss and margins are

based on Real Time Prices.

If your Account Valuation falls belowyour Margin Requirement , a

Margin Call will be triggered.

A notice of the margin deficit will besent to you via a “margin callemail". You are required to deposit

the amount of funds that we requestinto your account or reduce youropen position (s).



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SECTION 4SECTION 4

Liquidation LevelsLiquidation Levels



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Liquidation Levels

Your trading account is subjected toliquidation process if Account Valuationfalls below a percentage of the MarginRequirement (Liquidation Level) which is

required to support your Open Positions.

Liquidation is the closure of some or if not allopen positions.

*Liquidation Level Rate can vary



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SECTION 5SECTION 5

The Liquidation ProcessThe Liquidation Process(Consolidation Position)(Consolidation Position)



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The Liquidation Process -

Consolidated PositionExample 1

John has $5,000 in his Account Equity and he did the following trades

The Total Margin Requirement for the positions is US$4,000and the Liquidation Level is US$800 (4,000 x 20%).

There are no margin calls and liquidation at this point



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The Liquidation Process -

Consolidated PositionExample 1 (Cont’d)

John has unrealized loss of $1,200 and his

Account Equity is now $3,800 ($5000 – $1,200).

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Account Equity($3,800) < Margin Requirement ($4,000),Margin Call is triggered.

John is requested to top up US$200. The Account Equity($3,800) is above Liquidation level ($800), hence noLiquidation is triggered



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The Liquidation Process -Consolidated Position

Example 1 (Cont’d)

We now assume that there are further losses and John’s

Account Equity is now US$500. Liquidation is triggered as:Account Equity ($500) < Liquidation level ($800).

USDJPY position will be cut as it requires the Largest Margin.

STEP 1:Liquidate 100% of USDJPY and the new margin requirement for theremaining positions is:



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Margin Requirement for the remaining two Open

Positions ($2,000) > Account Equity ($500)

STEP 2

The liquidation engine will cut the Open Position with the second

Largest Margin Requirement which is the Nasdaq Open Position.

The liquidation process will stop only when Account equity≥≥≥≥ Margin

Requirement.



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The Margin Requirement for the remaining Open Positions is:

Gold is the only position left with a Margin Requirement of $600, but theAccount Equity is US$500. Margin Required is still higher than AccountEquity

STEP 3 – PARTIAL LIQUIDATION

We need to calculate what percentage of the position needs to beliquidated in order for Total Margin Requirement = Total Equity



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The Calculation:

Total Margin Requirement – Total Account Equity

600 – 500 = $100

100 / 600 = 16.67% has to be liquidated

100 * 16.67% = 16.67 oz Gold to be liquidated

In this case only a partial liquidation is required

However the minimum contract size for Gold is 10 units, so we must

liquidate 20oz Gold




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The new margin requirement is US$480 and LiquidationLevel is US$100*.

No further liquidation is required as the

Margin Requirement ($480) < Account Equity ($500).

*Minimum account balance US$100



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SECTION 6SECTION 6

The Liquidation ProcessThe Liquidation Process(Single Position)(Single Position)



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The Liquidation Process -Single Position

• The liquidation engine will create a new liquidation trade therebyreducing the Open Position to 0 and the Open Position is simply

added to the Open Position list on the Open Position blotter.

• Open Positions which create 0 exposure are not matched. This isleft to the discretion of the position holders.

• The fundamental purpose of Single Position accounts is to allow theposition holders to manually select the Open Positions he wants totake profits/losses on as opposed to the trading platformautomatically matching corresponding Open Positions in the sameinstrument.



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Example 2

Sharon has $3,000 in her Account Equity and she did the following trades



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Let us assume that there is an unrealised losses of $1,000. The new

Account Equity becomes US$2,000

Account Equity($2,000) < Margin Requirement ($2,400)Margin Call will be triggered.



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Let us assume that there are further unrealised losses and the new

Account Equity becomes US$150.

• Liquidation is triggered as

Account Equity (US$150) < Liquidation Level ($480)

• Liquidation will proceed until

Account Equity = Margin Requirement



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The position with the largest Margin Requirement will be cut first, in

this case it is the Nasdaq, but instead of closing, a new trade will be

added so net positions will become 0.




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Example 2 (Cont’

STEP 1We need create an opposite trade of exact size.




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STEP 2

Margin Requirement ($1,000) > Account Equity ($150),

Liquidation will continue and cut the USDJPY position.

However only Partial Liquidation is required for the

USDJPY position.

Total Margin Requirement – Total Equity= USD$1,000 – 150 =US$850

850 / 1000 = 85% to be liquidated

100,000 * 85% = 85,000 USDJPY liquidated

Minimum contract size for FX is 10,000 so we mustadd in a liquidation trade of 90,000 USDJPY.




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The new Margin Requirement is US$100 and new liquidation levelat US$20*. No further liquidation is required as the MarginRequirement (US$100) is now below the Account Equity (US$150).



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SECTION 7SECTION 7

Summary of Key ConceptsSummary of Key Concepts



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Key Concepts

Margin Call

Account Equity < Margin Required

Liquidation Occurs

Account Equity < Liquidation Level

Liquidation continues UNTIL

Account Equity = Margin Required



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Thank You

Documents

Margin Liquidation External Presentation