Darwinex has issued a notification to its clients regarding margin calculation for investor portfolios.
For regulatory reasons, in line with requirements imposed by the European Securities and Markets Authority (ESMA), Darwinex is required to ensure that DARWIN portfolios do not exceed a maximum exposure relative to the available funds in the portfolio. This measure is aimed at preventing retail clients from reaching risk levels that the regulation considers excessive and to minimise the possibility of a client losing more money than they have deposited.
This exposure is determined based on the underlying assets that the DARWINs have open, such as indices, stocks, commodities, or currencies; not on the amount invested in the DARWINs.
To protect the intellectual property of DARWIN providers, Darwinex cannot show the underlying assets to investors. However, it is obliged to display the level of open exposure in their underlying assets and manage the portfolio so that exposure levels never exceed those mandated by the regulation relative to the total funds in the portfolio.
The regulation dictates that brokers must require a minimum amount of available capital to open a certain exposure in an asset.
For example, if a client wishes to open €10,000 in EUR/USD, the client must have at least €333.33 in their accounts.
Based on the margin percentage, the regulation requires that:
- If a new position’s additional margin would cause the margin percentage to drop below 100%, the broker must not allow the position to be opened.
- If the margin percentage drops below 50%, which can only occur if the client withdraws money from the account or incurs losses that reduce their equity, the broker is obliged to close the client’s exposure until the margin rises above 50% again.
As this measure may affect some of our clients, Darwinex will implement the regulation in two phases:
In the first phase, already launched, clients will be able to see their margin percentage in the portfolio header, and the portfolio will take action in the following cases:
If the margin percentage is already below 100%, the system will not allow purchases in DARWINs or withdrawals from the portfolio.
If a client wishes to purchase a DARWIN and the margin percentage after the purchase would fall below 100%, the tool will not allow the purchase and will indicate the maximum investment that can be made in that DARWIN.
If the margin percentage after a withdrawal falls below 100%, the system will not allow withdrawals from the portfolio.
Additionally, although investments in DARWINs will not be automatically closed if the margin percentage drops below 50% for now, a notification will be sent when the margin level falls below 100%.
Darwinex is doing this so that in the unlikely cases where a client currently has a margin level below 50%, they will have time to act before Darwinex introduces the second phase: the automatic sale of DARWINs from the portfolio.
Darwinex anticipates launching this second phase within a month, providing clients ample time to act.
What Can I Do If My Margin Percentage Is Near or Below 100%?
This situation will occur in portfolios using leverage of level 3 or higher, with investments concentrated in very few DARWINs, and where losses are incurred in open investments.
In this scenario, there are several ways to increase the margin percentage:
- The most straightforward option is to deposit more capital.
- Redistribute the investment among more DARWINs. This can sometimes be challenging because selling DARWINs at a loss, especially if the investment is leveraged, will leave less available capital than was invested in the DARWIN before the sale.
- Proportionally sell all investments in the portfolio. By doing so, the level of open exposure will decrease, consequently increasing the available margin percentage.
As a general rule, for investors with maximum leverage of 3 or 4, Darwinex recommends investing in at least four DARWINs. This way, it is almost impossible for the margin percentage to ever drop below 100%.
