ESMA margin changes

TheRegulator

Member
70 1
Does anyone know if your a proprietary trader if that qualifies you working in the financial services sector and would qualify one of the criteria?
 

TheRegulator

Member
70 1
If you trade with australia broker regulation then leverage is the same 1:500 :)
hmm interesting. I live in UK. I am pretty sure there some restriction for UK residents otherwise that a loop hole.

can you recommend any Aus broker that's offering account for UK residents so I can register. thanks.
 

SUNSEEKER

Established member
872 12
I have written about the Australian companies, if you are interested in an article on the pros and cons of an Aussie broker.
 

tomorton

Legendary member
7,967 1,163
Here's an observation I nicked from another forum. Under the ESMA rules, risk of a negative account balance has been eliminated. However, positive account balance remains unlimited.

Therefore, is it not now possible to play a strategy similar to a long straddle by maxing exposure to a market long on one account and short on another of identical size? Its always been possible to do this, but the downside risk was that the "losing" account could keep depreciating in the absence of NBP to a level below deposited funds. This risk has been eliminated by universal NBP.

I'd just like to understand why this is BS.
 

barjon

Legendary member
10,557 1,709
Here's an observation I nicked from another forum. Under the ESMA rules, risk of a negative account balance has been eliminated. However, positive account balance remains unlimited.

Therefore, is it not now possible to play a strategy similar to a long straddle by maxing exposure to a market long on one account and short on another of identical size? Its always been possible to do this, but the downside risk was that the "losing" account could keep depreciating in the absence of NBP to a level below deposited funds. This risk has been eliminated by universal NBP.

I'd just like to understand why this is BS.
On the contrary it’s made matters worse since the “losing” account will be closed out when the loss reaches 50% of available margin instead of 5% (or whatever your broker used). This effectively closes the pair trade and just leaves you with the position in the “winning” account which may, or may not, be advantageous. In any event it’s no longer a pair trade.

For the pair trade to be in a winning position the “losing” account must always be losing less than the winning account is winning. Thus, if the “losing” account is down 50% of margin and the “winning” one is up 50% you would be dead flat and annoyed that your pair trade would be brought to a halt when you are net flat.
 

tomorton

Legendary member
7,967 1,163
This is not a pair trade though jon, its a straddle. So the net effect of one trade winning is exactly off-set by the other losing until the loser is closed, leaving the winner free to continue its upward (or downward) price movement.

Yes, in theory the loser should be closed at the 50% margin line, but in practice it must be possible for losing positions to continue "live" beyond that point - I can't see how, maybe only during an event like the SNB decision in 2015 - but the inclusion of NBP in the new ESMA package argues that it can happen in practice. Else why require NBP?

Loss of more than the deposited account would be a significant risk to the aware trader but that risk is now gone. The implication is loss of downside risk must be balanced by gain in upside risk. A long straddle across two accounts is a theoretical route but may there be others?
 

barjon

Legendary member
10,557 1,709
This is not a pair trade though jon, its a straddle. So the net effect of one trade winning is exactly off-set by the other losing until the loser is closed, leaving the winner free to continue its upward (or downward) price movement.

Yes, in theory the loser should be closed at the 50% margin line, but in practice it must be possible for losing positions to continue "live" beyond that point - I can't see how, maybe only during an event like the SNB decision in 2015 - but the inclusion of NBP in the new ESMA package argues that it can happen in practice. Else why require NBP?

Loss of more than the deposited account would be a significant risk to the aware trader but that risk is now gone. The implication is loss of downside risk must be balanced by gain in upside risk. A long straddle across two accounts is a theoretical route but may there be others?
Oh, ok. I was just thinking of pairs. The whole point of the 50% rule is to limit loss. As you say, I guess it can only continue beyond that point on slippage resulting from a fast black swan type event which could conceivably blow you right out of the water.
 

FXX

Experienced member
1,156 198
predicated of course on ones ability to determine with sufficient accuracy where price will go. Isn't this an aspect of a straddle that makes it extremely difficult to get right
 

tomorton

Legendary member
7,967 1,163
No, FXX, all you're hoping for is a dramatic movement away from current price, the more dramatic the better. If the move is not enough to cause closure of the losing side of the straddle, you've lost nothing barring the costs of opening two positions. With a simultaneous long and short of equal sizes, the loser is stopped out or closed by a margin call or whatever - but ESMA's NBP rule now means that if all closure mechanisms fail and price continues in its initial direction, you can still only lose your deposited funds from the losing account while the winner grows without restriction.

So is this a way to play an upcoming event that generates extraordinary volatility, like NFPR's?

I won't be doing this but someone will - why won't it work?
 
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