SpreadBet or CFD Brokers: Margins on hedged positions

[Agentginger]

Hi.

I've been googling to try to find a detailed
Comparison of SB and/or CFD brokers in the Uk.
Most results so far show only very high level info in the comparison, eg margin %s for certain markets, minimum trade size, etc.
I'm trying to find out which brokers, if any, will have a margin requirement on the NET position in a stock or index.
Ie. I've looked at IG and Plus500 and whilst they allow hedging a position, they seem to calculate the margin on both the long and short positions.

If i place an order that moves away from me, I can then short it to minimise my loss without closing out the position and crystallising the loss.
But if the margin requirement is based on one or both sides of the position I may eventually be forced to close or be liquidated, rather than staying in the trade until the price moves back in my favour.

Does anyone know of a broker that calculates margins of the Net position instead, and ideally who won't insist on a guaranteed stop loss being placed on orders for new traders, as that would have a similar effect
Of crystallising my loss, rather than allowing me to ride out a price movement.

Thanks for any help

 

[timsk]

Hi Agentginger,
Welcome to T2W.

. . .But if the margin requirement is based on one or both sides of the position I may eventually be forced to close or be liquidated, rather than staying in the trade until the price moves back in my favour.

If I've understood you correctly and you have two open trades - one long and one short on the same instrument - and you're forced to close one or both of them due to insufficient margin, then you're likely to be massively over leveraged and trading too much size. Scale down the size and this ought not to be a problem. That said, perhaps you're thinking of having multiple positions open simultaneously across many instruments?

. . .Does anyone know of a broker that calculates margins of the Net position instead, and ideally who won't insist on a guaranteed stop loss being placed on orders for new traders, as that would have a similar effect
Of crystallising my loss, rather than allowing me to ride out a price movement.

Choose a broker that offers the MetaTrader4 (MT4) platform as that allows you to open simultaneous long and short trades on the same instrument and, assuming they are the same size, I think you'll find the margin is cancelled out. Be careful though, especially if you're doubling down on the losing leg which is the temptation when you have free margin available to you that you might not otherwise have.

If you're an experienced trader and know the pros and cons of having two opposing positions open on the same instrument - all well and good. If you're not, do some research first as, arguably, there are more - and better - reasons for not doing it than there are reasons to do it. This thread covers quite a few of 'em: Can you be long and short at same time?
Tim.

 

[mike.]

Hi.


" rather than staying in the trade until the price moves back in my favour."

1. Are you sure the price is going to move back in your favour ?

2. How far are you willing to let price go in the opposite direction before you realize its not coming back ?

3.Have you taken into consideration the spread you will have to pay opening two positions on the same instrument ? and the affect it will have on your p/l

just a few simple questions to ask yourself before choosing a broker that will allow you to over leverage. Margin is there for a reason.

 

[Agentginger]

Thanks for the quick responses guys.
I take your points about the leverage / trade size and about holding onto a losing position. But my logic is that if I short a losing position then I'm not actually out of the money, as it's only a paper loss until I close the losing "long" position and the loss is fixed at the difference between long and short trades.
Eg if I decide to short when I'm already £50 out of the money, then I'll only ever be £50 (+ spreads) out of the money, and I'm giving myself a lot chance that the price could turn again in my favour.
As Mike says, it might continue to drop, and I may decide to close out both positions and realise a loss, but I'm no worse off than if I'd have closed out the long position or placed a stop loss (except for the additional spread of the short).
But this isn't possible if a brokerage is
A) enforcing a guaranteed stop loss on all trades (as is IG because I'm a novice). All this does is ensure I realise a loss if my initial bet is in the wrong direction.
B) calculate margin on one side of the position and not on the net position. If charged on net then the price can move as much as it likes away from me, and I'm only ever in the hole for the point at which I shorted. I take the point about trade size, but if I can short to minimise my exposure, then that mitigates the risk of huge losses.

Does anyone know of a specific broker which
A) allows hedging
B) calculates margin on net position
C) doesn't enforce a stop loss on every order?

Thanks
Ginger

 

[alphahunter]

For perfectly matched long short positions on a stock (force open), IG requires a 5% margin on the total gross position.

Example: SmallCap @ 25% margin

a) Enter Long L > INITIAL REQUIREMENT = L X 25%

then

b) Enter Short L > TOTAL REQUIREMENT = 2XL X 5% (in effect from 25% L to 10% L)

then say

c) Enter Long B > TOTAL REQUIREMENT = 2XL X 5% + B X 25%