Understanding how margin works is crucial for managing your trading positions effectively on Volatility.com.au. Below, we'll address key questions related to margin, including its calculation, optimization, margin multiplier, fund allocation, and interest considerations.
How Does Margin Work?
The leveraged nature of options allows traders to control a substantial position with a fraction of the equity needed. For example, selling a 30 Delta put on CBA at $104 might have a notional exposure of $3,172 for a cost of $971. This gives the trader the option to control a gross position of $10,400 worth of CBA stock until the option expires. This leverage is made possible through the use of margin.*
*Note the above example changes depending on strikes, delta & Price
How is Margin Calculated?
Margin calculation involves assessing the risk exposure of a position. Volatility optimizes margin by utilizing portfolio margin. This means that a new position is compared to the overall risk of the entire portfolio. The margin requirement for a position may be adjusted based on its impact on offsetting or increasing the existing risk in the portfolio.
Margin Multiplier
The margin multiplier is a factor added to the required margin by the ASX. Brokers use this multiplier to manage risk on their books. Volatility's margin multiplier is 1.2 times the ASX required margin, ensuring a balance between risk management and client support. Comparatively, other brokers may have different multipliers based on their risk tolerance and management strategies.
Where Does the Money Go for Margin?
The funds allocated for margin are posted to a ledger with the ASX as risk collateral for the position. This ledger is updated daily, and any margin movements (debit or credit) will be posted to your MQG Cash Management Account (CMA) at the end of each trading day.
Does This Money Earn Interest?
Money posted as margin does not earn interest. Only funds sitting in your Cash Management Account (CMA) have the potential to earn interest.
Need Assistance?
If you have further questions about margin, its calculation, or any related inquiries, our support team is here to help. Reach out through the "Contact Support" option on the platform or visit Volatility.com.au/support/contact