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Understanding Account Valuation

Read more about what spread betting is, how to trade and discover a range of tips and strategies.

Whether you Spread bet or trade CFDs, it is essential you understand how to manage your risk, how your account valuation works and feel confident in calculating margin requirements of each trade you place.

Understanding Account Valuation

Understanding Account Valuation

Understanding the way in which your account valuation works will assist you in gauging the current status of your funds and allow you to effectively employ your capital. On ETX TraderPro, there are a number of key measurements which can be found at the top of your screen. These consist of Balance, Profit/Loss, Margin, Margin %, Equity and TFA and they represent:

Balance – The realised Cash balance on the account (not including any current liabilities).
Profit/Loss – Combined profit and loss of all your open positions.
Margin – Current funds set aside to cover margin for open positions.
Margin % - This is your equity as a percentage of your Margin. Used for margin call calculations.
Equity – Your live balance, the most accurate reflection of the current status of your account.
TFA – Trade Funds Available. How much funds you have left to open positions.

As you begin to place trades on the account, these values will change. It’s important to understand why these numbers are changing and what it means for your trading. Read our complete guide on account valuation here.

The difference between margin and trade risk

What is the difference between margin and trade risk?

Margin is an amount that you set aside from your trade funds (TFA) to act as a security deposit on the position you want to open. Setting aside funds helps to ensure you have enough equity available to cover potential losses and stops you over-leveraging your account, effectively capping the number of positions you can have open at any one given time. Once a position is closed the TFA will update to match your total equity minus any used margin and profit or losses on open positions.

How to calculate margin

Here are 2 examples of how margin is calculated on an Indices and FX trade.

Indices - Germany 30 example:

• You would like to place a 50p a point spread bet on the Germany 30, which is trading at 12000
• The margin required on this market is 5% of the exposure on the trade
• Your exposure on this trade is 50p x 12000 = £6,000
• Therefore, the margin required to cover your position is 5% of £6,000 = £300

Forex - GBPUSD example:

• You would like to place a 50p per pip spread bet on GBPUSD, which is trading at 1.30000
• The margin required on this market is 3.33% of the exposure on the trade
• Your exposure is 50p x £13,000 = £6,500
• Therefore, the margin required to cover your position is 3.33% of £6,500 = £216.45

For TraderPro users, you will see the margin required to cover any position directly on a populated deal ticket.

How to calculate trade risk

Your actual trade risk can be calculated using a Stop:

• Say you went long on GBP/USD which is trading at 1.29465 with a required Margin of £432.
• Based on your analysis you place a Stop at 1.28945
• If the market price drops below this figure your position will automatically close out.
• At £1 a pip your potential loss will be around £52, your margin of £432 will be freed up.
• Your TFA will equal your total equity minus any used margin and profit and losses on open positions.

In this trade example, you are risking £52, not £432. This is the difference between Margin and Risk.

What is a Margin Call?

What is a Margin Call?

You will receive a margin call when your account is too low in funds and doesn’t cover the minimum margin required to continue trading. This can be caused when one or more of the securities held in your account has decreased in value below a certain point, or due to fluctuations in asset prices.

In a margin call, how much time do I get to close my trades?

If your account equity drops below 50% of the reserved margin amount then positions will be automatically closed out in order to bring your account equity back to 100%. However, under the new ESMA regulations, there is no time limit if your account is in a 100% margin call. This means if your TFA reaches zero you will be notified, however, there is no time limit for you to act.

50% Close out rule

You will receive an email notification if your account equity drops below 100%. As soon as your account equity drops to 50% of the minimum required margin, under the new rules, we will immediately reduce or close your positions until your account equity reaches 100% again. Any open positions held since 26th May will become subject to the new margin close-out rules.

For example:

• An open trade has a margin requirement of £500.
• If the TFA (Trade Funds Available) falls to Zero, that is the 100% margin call.
• When TFA falls to -£250 or Equity value is reduced to £250, (50% of the £500 margin) your positions will automatically be closed until back above the 100% required margin again.

Managing your risk

Managing your risk

Understanding risks associated with your positions and implementing tools to effectively manage this risk are key components of trading financial markets. Below you will learn more about the different risk management tools available, the importance of position sizing and understanding pip calculation.

Stop Loss

Stop loss orders are attached to open or pending orders and come in a variety of forms depending on the market and the current conditions. A standard stop loss order will close out an open position when the market has traded at the price level. On certain markets the option of a Guaranteed Stop can be ticked which guarantees the stop out level and protects the trade from any slippage, a Guaranteed Stop does incur a fee upon execution unless you trade our Popular Markets where Guaranteed Stops are free.*

A trailing stop allows the stop to move in preset increments in relation to the current trading price if the position is moving favourably. The stop will never move back against the trade if the market price moves unfavourably, it will remain at the level where the position will either be stopped out or trailed further if the price continues to move in the right direction. Initially, stop-loss orders can only be placed to counter your opening position, e.g. a buy limit/stop would require the stop loss to be placed below the opening price, a sell limit/stop would require the stop loss to be placed above the opening price. Stop loss orders can be amended where applicable but only to a position which counters the trade.

Position Sizing

Position sizing is the method used to calculate how much the trade gains or risks per pip movement. A trader is able to determine the risk on the position by calculating the difference between their entry price and the stop loss level. Stops are placed in positions based on a number of factors, these may include risking a certain amount of funds based on your account value and/or placing a stop on a technical level. Understanding how much per pip is being risked and where your stop is placed is key in understanding your total risk on the trade.

Pip Calculation

When determining how much per pip a position will gain or loss, a trader needs to understand what size constitutes a pip movement. CFD and Spread-betting have different calculation methods, this is because CFDs are based on a standardised contract for each market and spread betting prices every market on a per point basis in the accounts denominated currency.

For more information on how to effectively manage your risk, click here for our detailed guide.

*Free Guaranteed Stops are only free at certain times, on some markets for retail clients only - click here for more information.



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