Margin utilisation and its implications
High margin utilisation occurs when a significant portion of your maintenance margin in a trading account is used to finance open positions.
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If your margin utilisation reaches its maximum capacity, meaning your collateral no longer covers your margin positions, Saxo may be obliged to close all your margin products' positions. This process is commonly referred to as being "stopped out".
Be aware that option contracts are also considered margin products, even if the specific contract doesn’t utilise any margin. Any cash products, such as shares, bonds, ETFs or mutual funds will not be closed.
Although Saxo will make every effort to warn you with margin calls when your margin utilisation is approaching critical levels, ultimately, the responsibility lies with you to monitor and manage your margin positions and usage.
Preventing stop-outs
A stop-out in trading is the automatic closure of all margin positions when your margin utilisation reaches its maximum capacity and available collateral can no longer cover those positions. This mechanism protects both the client and the broker from excessive losses by preventing the account from falling into a deficit.
While rapid market fluctuations may sometimes constrain your reaction time, you can reduce the risk of being stopped out by:
- Increasing your collateral (deposit more funds)
- Reducing your market exposure by closing or reducing positions
- Regularly monitoring your account and set alerts in the Saxo platform to stay informed about your margin status and market trends
Margin monitoring tools
Saxo provides several tools to help you manage margin risk, among others:
Margin breakdown and margin impact
If you have margin positions, in SaxoTrader navigate to the Trading tab. In the bottom-left corner, click the info icon. The Account details will open. Under Margin, click the Maintenance margin reserved amount (blue link). The margin breakdown will open, and here you can see what margin impact each position has.
In addition to that, if you click on Open (blue link) you will get the Margin impact overview that shows how closing a position will affect the margin available.
Margin monitor
In SaxoTrader, the margin monitor keeps you informed on the impact that trading conditions changes will have on your portfolio. To learn more read Using the Margin monitor.
Expiring options closeout monitor report
This overview helps knowing the impact of expiring options on your margin utilization. Read Analysing margin utilisation spikes around option expiry.
Proactive steps to prevent high margin utilisation
There’s a lot you can do to keep margin utilisation under control, from making sure you have enough cash available to diversifying your portfolio, to frequently logging in and checking your portfolio.
Here we are focusing on using platform features:
- Enable notifications on your phone
- Use price alerts
Margin calls or margin alerts
A margin alert or call happens when your account value drops below the required maintenance margin. The need for additional collateral can arise from adverse market conditions or increased volatility. If margin requirements are not met, Saxo may issue a margin call. This can happen via platform notification and/or email.
Responding to a margin call
When a margin call is issued, Saxo’s general business terms outline several actions you can take:
- Meet the margin requirement: Deposit additional funds or approved securities to cover the shortfall.
- Adjust positions: Reduce open positions to lower exposure and align margin usage with available collateral. Saxo may also close or reduce positions to prevent significant deficits.
- Transfer funds between accounts: If you have multiple accounts, Saxo may transfer funds between them to cover currency exposure across sub-accounts.
- Consider Saxo’s rights: In exceptional or emergency market conditions, Saxo may increase margin requirements, close positions, or reduce exposure.
- Act promptly: Immediate action is essential, as delays may result in Saxo intervening to close or reduce positions to mitigate uncovered deficits.
Why margin calls matter
Margin calls help manage risk for both you and Saxo by ensuring your account has enough collateral to cover open positions. They are a safeguard against excessive losses and help maintain account integrity.