What is STEL?
STEL, or Stress Test Exposure Limit, is a key metric used by the ASX to assess individual portfolio risk. It represents a risk scenario where your portfolio is tested to evaluate the potential dollar value of risk it might face in a specific market situation. In essence, STEL measures the short-term risk exposure to a significant downside move in the market.
How is it Calculated?
The STEL scenario involves a -15% downturn in equities and +125% increase in volatility. This stress test aims to simulate adverse market conditions and assess the impact on the portfolio's value.
How does STEL Affect My Account?
STEL serves as a crucial risk management tool, helping you and the platform gauge the vulnerability of your portfolio to short-term market shocks.
What Happens if I Am Over My STEL Limit?
If your portfolio exceeds the STEL limit, the platform will take precautionary measures:
Blocking New Trades: Any new trades that decrease buying power and contribute to STEL will be blocked.
Allowing Beneficial Trades: Trades that improve buying power and reduce STEL will still be allowed and executed as normal.
How Can I Reduce My STEL?
Given that STEL is a measure of short-term, high-risk exposure, you can consider the following strategies to reduce it:
Diversification: Spreading your investments across different asset classes can help mitigate concentrated risk.
Risk-Adjusted Positions: Evaluate and adjust positions based on their contribution to STEL and overall risk.
Factors Adding the Most STEL:
Certain factors contribute significantly to increasing STEL:
Naked Short Positions: Uncovered or naked short positions tend to add more to STEL.
Short-Dated Options: Options with shorter expiration dates have higher STEL.
Gamma Exposure: As options approach expiry, they exhibit higher sensitivity to market movements (gamma), contributing to increased STEL.
Need Assistance?
If you have further questions about STEL, its impact on your account, or need guidance on risk management strategies, our support team is here to help. Reach out through the "Contact Support" option on the platform or visit Volatility.com.au/support/contact.