What are margin utilization, a margin call, and a forced sale?

A leveraged investment allows you to buy a financial product by immobilizing only a percentage of its value (the margin). The additional cash needed to buy the position is given by Flowbank. An overnight financing fee is charged (for each position open at 23:00 each day) to remunerate this cash utilization.


As investments are leveraged, the account value may become insufficient regarding the needed margin. This is monitored in real-time and may lead to forced liquidation of your position. You need to understand how margin utilization is calculated and the consequences of a margin call and a forced liquidation.


Margin utilization calculation

Margin calculations are performed on the sub-account level.


Margin utilization is the relationship between the needed margin and the value of the account.


The needed margin is the value of the position multiplied by the leverage. CFD pricing

 

  • As an example, for a CFD on Apple (leverage 1:20) the margin needed is 5% of the value of the underlying equities. If you want to take an exposition on 1,000 USD on Apple, you need a margin of 50 USD.


  • For unleveraged instruments, the margin needed is 100% of the position. This means if you want to be exposed directly to 1,000 USD of Apple you need 1,000 USD.


The margin is recalculated in real-time, updating the account value and the margin needed.


For example, if you took a CFD on Apple (1’000 USD) to be at 100% of margin utilization, and Apple gains 1% (to 1’010 USD), the margin needed will increase by 1% (from 50 USD to 50.5 USD), and the account value will increase to 10 CHF (to 50 USD to 60 USD). The margin utilization will now be 50.5 / 60 = 84 %.


With the same situation but with a loss of 1% on Apple, the margin needed will be 49.5 USD but the account value is 40 USD. The margin utilization will be 49.5 / 40 = 124 %.


You can always check your Margin Utilization level in your client area under “Account Summary”.

Margin call and forced liquidation
Once the margin utilization is over 100%, FlowBank will issue a margin call requiring you to deposit additional cash or acceptable collateral. In this situation, you won’t be able to open new positions, yet you will still keep the existing positions.

 

A margin call can be covered by:

-sending additional funds (cash or marginable securities)

- reducing position



From 100% of margin utilization, to protect you and Flowbank, our trading desk can decide to liquidate enough of your positions to bring back the account below 100%. This can happen at any moment without your prior approval or any pre-notification.


At 150% of margin utilization, an automatic order to decrease or fully liquidate your open positions will be executed.


Please see the bank’s General Terms & Conditions and risk disclosure CFD regarding the forced liquidation mechanism.

Note for MT4 users: please note that in the MT4 environment, margin utilization is called “margin level” is calculated the opposite way (value of the account divided by margin needed). This means that the margin call begins once the margin level is below 100% and the automatic liquidation happens at 67%.

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