With margin accounts, experienced traders can benefit from leverage based on your portfolio with appropriate margin requirements. At CapTrader you benefit from particularly low interest rates on margin loans.
With your Deposit application you have the choice between different account types at CapTrader (depending on your personal residence):
- Cash account
The total trading volume and transaction fees must be covered 100% in the trading currency. You cannot spend more money than you have in the respective trading currency.
For trading with CFDs, futures as well as for Short sales a margin account is always required. - Margin account REG-T/Standard Margin
- Portfolio margin account (more info about the margin account portfolio)
Choose between the account types in the deposit application. After successfully opening a securities account, you can convert your cash account into a margin account (or vice versa) at a later date if you meet the conditions of the margin account.
A margin account is always required for trading CFDs or futures. For options, margin only needs to be provided if short positions are to be taken. In addition, a margin account can also be used to buy shares and other securities on credit if required.
Tip: CapTrader recommends a minimum initial deposit of €2,500
Background: As soon as the total balance of your account falls below €2,000 (or the equivalent in foreign currency), the margin account becomes a temporary cash account with all its trading restrictions. Only when the account balance exceeds € 2,000 again will all the functions of the margin account return. Avoid these restrictions with an initial capitalization of at least € 2,500.
Margin requirements: Differences between RegT and Portfolio Margin
Customers residing outside the EU (EEA) can compare the current Reg T margin requirements of their portfolio with those for portfolio margin rules by clicking on the "Try PM" button in the TWS account window.
Margin for securities - definition of initial and maintenance margin
The term margin defines the necessary security deposit, which is required for opening and holding a position.
- Initial Margin - initial margin
Initial margin is the amount of security that must be deposited in order to open a position in the margin account. - Intraday Margin
For open positions, the intraday margin must be continuously provided as collateral. If this is no longer the case, there will be a forced liquidation of positions from your portfolio (Further information on the margin call) - Overnight Margin
Overnight margin is required for holding open positions overnight.
Detailed information on margin for securities
The Federal Reserve Board and self-regulatory organizations (SROs), as well as the New York Stock Exchange (NYSE) and FINRA, have clear rules regarding margin trading. In the United States, the Fed's Regulation-T allows investors to borrow money for up to 50% of the price of the securities. So here a leverage of two is allowed.
The percentage of the purchase price of the securities that an investor must pay is the Initial Margin. To purchase securities "on margin," the investor must first deposit sufficient cash or broker-eligible securities to meet the initial margin requirements for the purchase. To trade securities on margin, the investor must first maintain sufficient cash or securities eligible with the broker to cover the margin requirements.
Once an investor begins buying a stock "on margin," the NYSE and FINRA require that a minimum amount of equity be held in the investor's margin account. These rules require that an investor have at least 25% of the total market value owned collateral in the margin account. This is the so-called maintenance margin. Here, a leverage of four is allowed. For market participants classified as Pattern Day Traders (PDT) (relevant for Non-EU (EEA) clients only), the maintenance margin requirement is the minimum of USD 25,000 or 25% of the total market value of the collateral (the higher of the two amounts).
If the balance of the margin account falls below the minimum required margin, the broker may issue a margin call requesting the investor to deposit additional cash in his account or close positions. Otherwise, the broker will liquidate positions from the portfolio.
Brokers also set their own minimum margin requirements. These are referred to as in-house requirements ("House Requirements"). Some brokers offer more generous loan terms than others and loan terms may also vary from client to client. However, all brokers must always stay within the parameters for margin requirements set by the relevant regulators.
Not all securities can be bought on margin. Trading on margin is a double-edged sword. It allows for higher profits, but can also lead to greater losses. In volatile markets, investors using a loan from their broker may have to deposit additional cash or close positions if the price of a stock falls too far (when buying on margin) or rises too sharply (when selling stocks short). In such cases, brokers have the right to liquidate a position, even without prior notice to the investor. It is therefore crucial to monitor the development of the position in question in real time when buying shares on margin and selling shares short.
Margin for commodities/forward contracts
For commodities/futures, margin refers to the amount of equity that an investor contributes to collateralize a futures contract. This can be expressed by the following equation:
- Collateral = amount of equity capital required to deposit the futures contract
- Security deposit ≥ Margin requirement
Margin requirements for futures and futures options are calculated by each exchange using a calculation algorithm known as "SPAN margining." SPAN (Standard Portfolio Analysis of Risk) assesses the overall risk of the portfolio by determining the word-case loss that a portfolio of derivatives and physical financial instruments could realistically incur over a given point in time (usually over the course of a trading day). This is done by calculating the gains and losses that the portfolio would experience under different market conditions. The most important aspect of the SPAN method is the SPAN risk range ("risk array"), a set of numerical values that indicate how the value of a particular contract will perform positively or negatively under different conditions. These different conditions are called risk scenarios. The numerical value of each risk scenario represents the gain or loss that the specific contract will experience given a particular combination of price (or underlying) changes, volatility changes, and reduction in time remaining to maturity.
Initial and minimum margin for commodities/forward contracts
As with securities, required initial and minimum margin amounts apply to commodities/futures contracts. These are usually set by individual exchanges as a percentage of the current market value of a futures contract, based on the volatility and price of the contract. The initial margin required for a futures contract is the amount you must deposit as collateral to open the position for that contract. In order to buy a futures contract, you must meet the initial margin requirements, i.e. you must either have the corresponding amount already available in your account or deposit it into your account.
The minimum margin for commodities/futures contracts is the amount you must have ready in your account to support the futures contract. This amount represents the minimum value to which your account balance may fall. If your account threatens to fall below this value, you must deposit additional funds or close positions. Commodity positions are valued daily at current market value (marked-to-market) and your account balance is adjusted according to the determined gain or loss. As the price of the underlying commodities fluctuates, it is possible that the value of a futures contract may drop so low that your account balance falls below the required minimum deposit. If this occurs, the broker may issue a margin call. This means that you will be asked to deposit additional funds into your account or close positions in order to restore the required margin coverage. Otherwise, the broker may perform a forced liquidation, where portfolio positions are closed.
Real-time margin calculation
Real-time based margin calculations are used so that you can correctly assess your trading risk at all times. The real-time margin system applies margin requirements throughout the day to new transactions and to transactions already on the books, and enforces margin requirements at the end of the day. No delayed margin calls occur; instead, uncovered positions are liquidated in real time. This system allows our fees to be kept low as we do not have to pass on incurred credit losses to our customers through higher costs.
The account window in Trader Workstation (demo account or real securities account) shows the margin requirements in real time at any time.
Margin model
Margin requirements are calculated either rule-based or risk-based.
| Margin calculation basis | Available products |
|---|---|
| Rule-based margin system: preset and static calculations are applied to each position or predefined groups of positions (strategies). | REG T Margin Accounts: US stocks, index options,stock options, single stock futures (SSFs), mutual funds All accounts: Forex, Bonds, Canadian, European and Asian Stocks, Canadian Stock Options and Index Options. |
| Risk-based margin system: exchanges take into account the maximum (one-day) risk on all positions | Portfolio Margin Accounts: US equities, index options, stock options, single stock futures (SSFs), mutual funds AllAccounts: All futures and futures options in each account. Non-U.S./non-Canadian stock options and index options in each account. |
Supplementary margin model
Systems that derive risk-based margin requirements provide appropriate risk assessments for complex derivatives portfolios using small/moderate change scenarios. Such systems are less comprehensive when considering larger price movements of the underlying stock or futures.
Algorithms have been added to the simple exchange margin models to account for portfolio influences of larger movements of up to 30% (or larger for extremely volatile stocks). This "extreme margin model" could increase the margin requirement for portfolios with net short positions and is particularly vulnerable to short positions in far out-of-the-money options (far OTM).
When you short sell a security, you must have sufficient equity in your account to cover any fees incurred by borrowing the security. When you borrow the security from the broker, the broker borrows the security on your behalf and your account must have sufficient collateral to cover the margin requirements of the short sale. In order to cover administrative fees and lending charges for the securities, 102% of the borrowed security value must be posted as collateral with the lender.
In cases where the short sold security is difficult to lend, the lending fees can sometimes be so high (more than the interest income) that the short seller must pay additional interest for the lending privilege of the security. Customers can view indicative interest rates for shorting a particular stock using the "short stock (SLB) availability tool" in the software area of your account management page.
Notes
- In the interest of ensuring continued security for customers, certain margin policies may be modified to accommodate unforeseen volatility in financial markets. The changes promote a reduction in leverage in customer portfolios and ensure that customer accounts are adequately capitalized.
- It will focus on prudent, realistic, as well as forward-looking approaches to risk management. To ensure full notification to customers, we post new announcements on our website. We recommend all clients to check this page regularly for advance warnings regarding changes in margin policies.
- Note that the credit check for order entries takes into account the initial margin of existing positions. For example, even if an account holds an existing position at 35%, the initial margin requirement of this position is the relevant criterion used for the credit check for acceptance of the order.
- The market values/prices used to calculate an active account's equity or margin requirements may differ from the price provided by the exchanges and other market data providers and represent our valuation of the product. It may, among other things, calculate its own index values, ETF values or derivative values and value securities, futures or other investment vehicles based on bid/ask price, last sale price, midpoint or other methods. A valuation method that is more conservative than the market as a whole may be used.
Risk fee for high-risk deposits
A daily "risk fee" is levied on a small proportion of customers whose accounts carry a particularly high worst-case risk of loss. The aim of charging this fee is to achieve a certain level of protection against accounts with high-risk positions that currently meet the applicable margin requirements but could still suffer huge losses in the event of a significant market movement (e.g. accounts with large investments in short positions in options).
Risk fees are only charged to a small group of customers who hold particularly risky positions in their accounts. For most accounts, this fee does not apply. This fee is not an addition to the minimum margin. It is a fee that is deducted from the affected accounts to compensate for the risk incurred by holding such an account. Please note that the risk fee is not an insurance against losses in your account and you are still liable to the broker for debts and deficits in your account even if you have paid risk fees.
As part of the risk management process, the broker simulates profit/loss scenarios for customer portfolios every day based on hypothetical market changes of certain magnitudes ("risk potential analysis"). The analyzed scenarios may go beyond the parameters used by various exchanges to determine minimum margin requirements.
As part of this daily process, a risk fee is charged to holders of high-risk accounts to compensate for the risk, as these accounts may represent a larger loss. As part of the risk potential analysis, if an account were to lose enough value to eliminate equity and also create an unsecured liability to the broker (i.e. negative equity), this would create a risk for the firm (as the broker) is legally obligated to guarantee the performance of their clients to the clearinghouse, even if the client has no other equity).
The risk fee is calculated for all calendar days and charged to the account at the end of the following trading day. Example: The risk fee debit on the turnover overview on a Monday corresponds to the incurred risk fees for Friday, Saturday and Sunday. The results of the risk potential analysis related to the risk fee are made available for each account via the account management on the CapTrader website.
Please note the following:
- The risk fee is calculated at the Company's discretion. The calculation method is subject to change at any time without notice and is based on a proprietary algorithm developed to determine the potential risk that an account represents to the Company.
- Depending on market movements, changes in the account's portfolio, and changes to the formulas and algorithms IB uses to assess account risk, the risk fee may change daily.
- The risk fee is calculated daily and levied the next day on affected accounts. Accounts subject to the risk fee should hold excess liquidity to avoid a margin deficit. If the debit of the fee results in a margin deficit, positions in the account can be liquidated as explained in the client agreement.
- For accounts for which both a (position) fee for overnight positions and the risk fee apply, the fee with the higher amount is charged.
- The risk fee does not act as insurance. Customers remain responsible for paying any account debts or deficits. Regardless of whether the risk fee has been charged on an account and it has been paid, no liability is removed from the account. Debts or deficits will not be offset or reduced by any risk fee amounts that may have been paid at the time.
The risk fee is calculated for all assets in the entire portfolio.
If you wish to avoid being charged risk fees, you may consider the following actions:
- You can contribute additional capital, which will improve the risk profile of your account and may reduce or eliminate risk fees.
- Holding one or more individual positions in high concentrations exposes accounts to higher risk potential. Therefore, it increases the likelihood that the account will be subject to a risk fee. Managing risk through diversification and hedging can reduce risk and thus reduce or eliminate the risk fee.
- Closing short option positions can also help reduce or completely eliminate the risk fee. Tests indicate that short positions in low-priced options generate the greatest risk potential relative to capital.
Additional tools for accounts
- A risk fee report on account management is offered that provides details on the fee and examples of hypothetical adjustments to existing positions that, based on available information at this time, would likely reduce the fee if these examples were implemented.
- The Risk Navigator offers a custom scenario feature that allows account holders to determine what potential impact changes to your portfolio would have on the risk fee.
- Via the order preview window, a function is offered that allows the account holder to check what impact an order will possibly have on the expected risk fee.