A margin plan helps manage financial risk by ensuring traders do not excessively leverage their positions and that the firm has adequate controls to prevent significant financial losses.
What is margin trading?
Margin trading involves using borrowed funds from the brokerage to trade financial instruments. The margin plan typically includes the following:
- Initial margin requirement: The percentage of the position’s total value that must be covered by the trader’s own funds when opening a trade.
- Maintenance margin: The minimum amount of equity a trader must maintain in their margin account to keep the position open.
- Margin calls: Procedures for when an account falls below the maintenance margin, requiring the trader to deposit more funds or close positions to cover the shortfall.
- Risk management: Strategies to mitigate risks associated with margin trading, such as setting maximum leverage ratios, stop-loss orders, and other trading limits.
- Leverage: The amount of leverage (loaned funds) available to traders based on the type of securities traded and the trader’s profile.
Adding a new risk plan
1. To add a new Risk plan, go to the Plans -> Margin & Risk section and click the + button.
Risk plan settings are divided into several groups, such as:
- Risk plan – Allows setting the general parameters of the plan.
- Derivatives risk module – Margin requirements for derivatives market.
- Default risk settings – Main risk settings of the plan.
- Per-instrument settings – Becomes available in the ‘Edit risk plan’ mode, after saving a default risk plan.
2. Add name and description.
When you add a new risk plan, you will see this window:
Here, you need to name and describe your new trade plan.
3. Click Save & Close.
4. In the “Plans – Margin & Risks” section, you will see your new margin plan. To edit it, click on it. A new pop-up window will open.
5. Once you select a category or instrument you want to edit, you will have that option:
Keep in mind that when entering the margin percentages, you need to use invers. If you want to have 1:20 leverage, think of it as 100:20, so you would enter 5. If you want 1:1, think 100:1, so enter 100. If you want 1:5, think 100:5, so enter 20.
6. Set the risk plan.
After creating it, the corresponding Risk plan will be available for selection in the User/User group -> Trading – > Margin & Risks -> Risk plan section: