Last August 1st 2018 the European Securities and Markets Authority (ESMA) introduced the so called 50% margin close-out rule.
What does the 50% margin close-out rule imply?
When your total account value drops below 50% of the amount you invested initially*, your worst position(s) will be closed in order to bring your Trading Capacity back to at least 50%**. Let's say that you initially invested £1,000 - if your total account value drops below £500, your worst position(s) will be closed to make your Trading Capacity go back to the 50% threshold.
Where can I check my Trading Capacity?
You can keep an eye on your 'Trading Capacity' via the 'cash' tab in the app:
*If you use the Flexible Multiplier feature, the Trading Capacity is calculated based on the initial amount and not on the invested amount after the change.
** As the execution of liquidations happens manually, you may sometimes notice a delay in the actual closing of your position(s). Also, you may see that your Trading Capacity has temporarily dropped under 50%. However, we will always close a position as soon as your Trading Capacity drops below 50%, at the price at the moment the liquidation is triggered.
What can I do if is see that my Trading Capacity is getting close to 50%?
You have the following options to prevent your worst position(s) from being closed automatically:
- close a position yourself
- add funds to your account to increase your Trading Capacity.
Will I get any warning when my Trading Capacity is approaching 50%?
We have implemented an automated warning system in our app, which aims to send you a heads-up when your Trading Capacity has hit 65% and 55%. Please note that due to high volatility these warnings are to be considered 'not guaranteed', so we still advise you to pro-actively keep an eye on your Trading Capacity, especially if you are using a high Multiplier or if one of your positions accounts for a large part of your account value.
So, how is my Trading Capacity calculated?
To calculate your Trading Capacity, the formula below is applied:
(total account value) ÷ (total invested amount)
The 'total account value' is the value of your entire account. You can find this value in the top right corner of the screen.
The 'total invested amount' is the total sum that you initially* invested in all current open positions, excluding the Multiplier.
Here is an example: let's say that you deposited £1,000 and invested £400 in Facebook, which then drops by 50%. At this point, your total account value is £600 (cash) plus £400 (invested amount) minus £200 (your loss).
Your Trading Capacity will be:
(600 + 400 - 200) ÷ (400) = (800 ÷ 400) = 2.0 which is 200%.
Are you left with questions after reading this FAQ? Shout out at firstname.lastname@example.org.