New ASIC regulations for Australia standardise the way margin close out rules work for retail traders. If the total equity of your CFD account falls below 50% of the margin required for all your open CFD positions on your account, one or more of your open CFD positions will be closed out as soon as market conditions allow. Importantly, these rules now also apply to limited risk positions and bought options, which is a significant change to how these positions are margined. On the IG trading platform the new margin close-out rules came into effect from Saturday 27 March 2021. Please find an overview of the new regulation and how this may affect your account.
Please remember that these changes only affect retail client accounts held with the Australian office of IG(this includes New Zealand clients), and do not apply to IG Pro clients.
What is the new ASIC margin close out rule?
Put simply, under the new ASIC rules we will include running losses for limited risk positions (including bought option positions) when looking at the equity calculation.
Let's look at a worked example, with a sumary below:
- Say you have $1200 cash on your IG account.
- You place an Australia 200 trade with a guaranteed stop and it requires a margin of $1000.
- If the market moves against you $200's worth you would then start to eat into your equity.
- If the market continues to move against you by a further $500 (i.e. 50% of the margin required to open your trade) your position would be closed.
- This is because your equity is now only 50% of your margin requirement.
- The new ASIC rules require us to close the position.
- You would be left with $500 in your account.
- Please remember if the market gaps over this level then there is no guarantee to close your trade at this exact 50% level. There is a 'negative balance protection' rule which will be in place from 27 March, however this applies to the account as a whole and only applies to new positions opened after 27 March.
|
Example 1 |
Example 2 |
Example 3 |
Funds |
1200 |
1200 |
1200 |
Margin |
-1000 |
-1000 |
-1000 |
P&L |
0 |
-300 |
-700 |
Equity |
1200 |
900 |
500 |
Available |
200 |
0 |
0 |
Equity vs Margin |
120% |
90% |
50% |
Margin status |
Sufficient Funds |
Margin Call |
Positions Closed |
A couple of other important things to note:
- We will not be implementing automatic close outs for ASIC retail clients on margin call for over 24 hours or leading into a weekend. This change was made on 27 March and was applied on an account level (both existing and new positions).
- If you have a regular trader account, you can still use running profits to cover margin on new positions.
- Positions which have guaranteed stops will be margined at the higher value; maximum risk on the trade or the underlying market margin rate.
What does this mean for me?
If you currently have a limited risk account (i.e. every time you open a new trade you have to have a guaranteed stop attached to your trade) then you may be at risk of having your positions closed out automatically. This will be the first time that 'limited risk' accounts can get closed out automatically. When we previously calculated your available funds, prior to the ASIC requirements coming into force, we did not factor in running losses on positions with guaranteed stops attached. Under the new ASIC requirements, we will need to include running losses on such positions as part of the margin ratio / available funds calculations. This means that your positions will be closed out when your equity (ie cash including all running profits and losses) covers only 50% of your margin requirement.
If you currently have a regular account (i.e. you don't need to apply a guaranteed stop to every position, however it is an option if you wish) then you may be at risk of having your positions closed due to the above change in close out rules.
You may also find the following links useful:
https://www.ig.com/au/asic
https://www.ig.com/au/professional
https://www.ig.com/au/cfd-trading/charges-and-margins/margin-calls
Once again, please remember that these changes only affect retail clients of the Australian office of IG(this includes New Zealand clients), and do not apply to Pro clients.
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