It is important for the VIBHS Financials Ltd clients to understand the VIBHS margining system and liquidation process.
Margin Definition: A margin is cash/collateral that the buyer/seller of a financial instrument has to deposit to cover some or all of the credit risk of their counterparty. It is also called performance bond. Margin acts as a good faith deposit to secure clients' financial obligations and the notional value of his position.
There are two types of margin,
VIBHS defines the margin amount for both the margins and they are subject to change depending on various factors, predominantly volatility in the market. Click on the Margin below to refer to the margin requirement of VIBHS Financials Ltd.
The margins are indicative and may vary without prior intimation; they may vary in live market scenarios as well.
Margin trading allows clients to hold a position much larger than the actual account value because of leverage. Margin calls are triggered when clients' usable margin (difference between initial and maintenance margin) reaches zero. In the event when client's floating losses reduce account equity/balance to a level that is less than or equal to clients' maintenance margin requirement. Therefore, the result of any margin call is subsequent liquidation unless otherwise specified. VIBHS is not obligated to provide a margin call warning to clients prior to liquidating open positions.
Trading on margin comes with risk. Potential gain coincides with potential loss. If account equity falls to a level that is less than or equal to client's maintenance margin requirement, means the usable margin has become zero client is suppose to transfer/deposit funds within 24 hours. In other words clients need to bring the margin back to the Initial Margin level by transferring/remitting/depositing funds to their respective accounts. Failing which clients' positions will be liquidated. However, VIBHS is not obligated to hold the position for 24 hours. If clients' position further deteriorates and the Net Liquidation Value hits 20% of the Initial Margin, his/her position will get liquidated immediately. VIBHS may choose to liquidate all open positions or part of the open positions and in the manner it deems fit and appropriate. The liquidation process could be electronic or manual. It is completely on VIBHS's sole discretion to liquidate such open positions that is on margin call (client is on a margin call when his usable margin is zero) for more than 24 hours or his/her Net Liquidation Value has become 20%, whichever is earlier.Example
John traded five lots of EUR/USD and two lots of Gold contracts. The initial margin requirements for both the contracts are USD 1000 per lot and maintenance margin USD 500 per lot (50% of Initial Margin). John's account had balance of USD 8000 against the initial margin requirement of USD 7000 (5 lots of EUR/USD and 2 lots of Gold). His maintenance margin requirement stands at USD 3500 (50% of USD 7000) for 7 lots and Net Liquidation Value at USD 1400 (20% of Initial Margin).
Day 1: John earns USD 100 per lot in EUR/USD and gained USD 50 in Gold. His account balance is now USD 8600 [8000 + (5*100) + (2*50)] > USD 3500. John continues with his open position.
Day 2: John loses USD 300 per lot in EUR/USD and gains USD 80 per lot in Gold. His account balance is USD 7260 [8600 - (5*300) + (2*80)] > USD 3500.
Day 3: Johns' position further deteriorates and his loss is USD 440 per lot in EUR/USD and USD 150 per lot in Gold contracts. Johns' account balance stands at USD 4760 [7260 - (5*440) - (2*150)] > USD 3500.
Day 4: On fourth day John gains marginally USD 20 per lot in EUR/USD but Gold continues to slide and drops by USD 150 per lot. His account balance at the end of fourth day stands at USD 4560 [4760 + (5*20) - (2*150)] > USD 3500.
Day 5: EUR/USD loses ground by USD 200 per lot and Gold falls by USD 40 per lot. John's account balance status is USD 3480 [4560 - (5*200) - (2*40)] < USD 3500.
John is on a margin call. He immediately needs to remit/deposit USD 3520 (USD 7000 – USD 3480) to bring his margin back to the Initial Margin level.
Scenario 1: John fails to remit fund USD 3520 as per margin call even after 24 hours. In the mean time his position further deteriorates as EUR/USD drops by USD 100 per lot and Gold by USD 150. His account balance is USD 2680 [3480 – (5*100) – (2*150)] < 3500 > 1400. After the lapse of 24 hours VIBHS squares off his 4 lots of EUR/USD and one lot of Gold. Therefore, his open position now stands at 1 lot of EUR/USD and 1 lot of Gold. Initial Margin requirement of the two lots are USD 2000 @ USD 1000 per lot. His account balance now is USD 2680 > USD 1000 (Maintenance Margin @50% of Initial Margin).
Note: VIBHS Financial Ltd may also choose to square off all his positions.
Scenario 2: John's open position deteriorates faster and in quick time, EUR/USD opens with a gap and in couple of hours shades USD 350 per lot and Gold shades USD 180 per lot. Johns account status in next 2 hours on sixth day stands at USD 1370 [3480 - (5*350) - (2*180)] < 3500 < USD 1400. In this scenario VIBHS immediately squares off part/all his open positions.
Scenario 3: Johns' open position in EUR/USD gains USD 100 per lot and Gold shades USD 30 per lot. His account status in this scenario stands at USD 3920 [[3480 + (5*100) - (2*30)] >USD 3500. John is no more on a margin call.
He can continue with his positions.
At times during the forced liquidation because a client is on a margin call, there may not be enough liquidity. Therefore it is also possible that the client equity becomes negative because of extreme volatility and gap. Clients would be responsible to make good to such negative balances. VIBHS also recommends that clients use Stop orders to limit downside risk.
It is strongly advised that clients keep their account adequately funded and maintain additional margin in their accounts at all times and do not allow their account balance to fall at or below the maintenance margin.
We provide our customers, dealer assist execution through its skilled and proficient dealing desk. Customers can also place orders over chat through secured login.
We recommend our clients to read VIBHS Fifty Point Trading Prudence.
Our esteemed clients should take following precautions while trading online,