Cheat sheet for investors: incomplete transactions

Шпаргалка для инвестора: сделки с неполным покрытием

Cheat sheet for investors: incomplete transactions

We tell new investors about the opportunities and nuances of unsecured transactions

Execution of unsecured transactions provides an opportunity to multiply the investor's income - this magic phrase has been heard by many newcomers from old-time investors..

Under-collateralized transactions are not recommended for unqualified investors, therefore, it is worth coming to such instruments as you study theory and gain experience in trading.

To understand, how effective is this product and is it worth using, let's start from scratch: dispel or, vice versa, let's bring doubts.

What are unsecured transactions and how they can be useful for an investor?

When working in the foreign exchange and stock markets broker gives its clients the opportunity to conduct transactions secured by their own assets (cash and securities), namely:

• Make deals, having only a part of the amount on the account for settlements

• The rest of the money is deposited after the settlement of the transaction

• Buy securities or currency and receive income if their value increases

• Open short positions (shorts) and use the depreciation of the asset to generate income

• Withdraw part of the funds, without selling securities and without waiting for transactions to be settled.

How it works

Many brokers include Under-Collateralized Transactions in their standard brokerage agreement. The investor will pay a commission for using the service.

The fee is set as a percentage per annum. The rate depends on:

– asset, with which the unsecured position arose (rubles, currency, Russian securities, foreign securities),

– directions of the transaction (Long, shorts),

– on the size of an open unsecured position on all brokerage accounts of the investor or on the volume of assets on brokerage accounts,

– other possible conditions of the broker.

Of course, it is worthwhile to find out all the parameters of the transaction in advance.

The ratio of equity to unsecured position will allow the investor to increase potential profit. It should be remembered about the other side of the coin - this will proportionally increase the risks., therefore, losses can grow accordingly.

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How much volume can you open a deal with incomplete collateral?

Note, that there are no uniform conditions on the stock, neither in the foreign exchange market is provided.

There are some parameters, which the broker pays attention to:

– Direction of the deal: long or short.

When a deal is opened with incomplete coverage, a debt arises on the investor's account - in rubles (Long), currency (long / short) or by securities (shorts), which is carried over by the conclusion of special deals: on the stock market - auto REPO, on the foreign exchange market - AutoSVOP. The prefix "auto" means, that transactions are concluded automatically. In brokerage reports, such transactions are simply designated REPO or SWAP..

– The broker calculates the risk category and takes into account the history of the relationship with the client.

Brokers usually categorize clients by risk level:

– with standard risk (KSUR),

– high-risk (KPUR),

– with a special level of risk (COUR) - for corporate clients.

Usually, immediately after the conclusion of the agreement, the investor has the status of CRMS.

– Asset quality to ensure.

The broker sets a certain risk scale. By instrument, which are considered more reliable, you can get more money. At the same time, the risk rate is not set for all instruments..

The risk rate is a discount, with which the broker evaluates collateral instruments.

The broker controls risks and calculates Initial Risk Rates in case of a long position (Dlong) and in case of a short position (Dshort).

Risk rates applied by the broker, usually, published on the Internet on the broker's website.

When calculating the initial risk rates, the:

• Volatility of the market as a whole. The more volatile the market is, the higher the risk of changes in the value of a security or currency, which means, higher and risk rate.

• Liquidity (volatility) specific security or currency. Known, that large orders to buy / sell less affect the prices of highly liquid instruments, than the prices of low-liquid. Consequently, the less liquid the financial instrument is, the more volatile its price, which means, higher and risk rate.

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• Rates of superior clearing organizations. The broker cannot set rates lower, but has the right to set higher, taking into account its own risk assessments.

When the value of the portfolio decreases to the level of the Minimum Margin, the broker can forcibly close the positions of clients with different levels of risk or change the parameters of the so-called level of funds adequacy.

Who is suitable for under-collateralized transactions?

For that investor, who got out of rookie status, learned the taste of victories and defeats and would like to make extensive use of trading opportunities in the securities market.

What opportunities the investor will get:


– Buy more securities or currencies, than there is free money for that, and make money on the growth of quotes, increasing the position - long position Long.

– Make money on the decline in securities quotes, by entering a short position Short.

– Sell ​​securities or currencies, which I have not bought before.

– Trade on one site secured by margin assets on another site, while not selling them.

– Trade foreign securities secured by Russian securities and vice versa.


– For technical purposes (type technical overdraft): add money after the transaction, but before settling on it.

The stock market provides for the principle of deferred execution (T +…, where T is the day of the deal). It means, that at the conclusion of the transaction, the delivery of the asset and the withdrawal of funds does not occur immediately, and the next working day (T + 1), or every other day (T + 2), depending on the settlement mode. So, all promotions (Russian and foreign) traded in T + 2 mode.

This mechanism creates room for maneuver.: at the time of the conclusion of the transaction, the investor must provide only the minimum required amount, the rest can be brought later, before the actual settlement of the transaction.

In this case, there will be no debt on the account and the client will not have to pay for the service received..

To gain experience in the derivatives market for an investor, perhaps, it is better to start with similar operations, that is, for technical purposes for a short time. Understanding the trading mechanism and realizing the emerging risks, then the investor can use all the market opportunities for speculative purposes.

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How does a broker work, to minimize risks

The broker controls the possible losses of the investor to a certain extent. If the initial margin exceeds the value of the client's portfolio, then the investor will not be able to open new positions, aimed at increasing the margin.

The broker sends the investor a Margin call - a notification about the need to add funds to the account or partially close positions.

The risk of holding the current position can be assessed by the Minimum margin. It is calculated as Initial margin * coefficient k_min, which is determined depending on the client's Risk Level and is published on the broker's website.

If the minimum margin exceeds the value of the client's portfolio, then the broker performs forced closure up to a different value of the parameter of the Level of Adequacy of Funds (UDS) depending on the client's risk level (KSUR, KPUR, COUR).

At the same time, depending on the market situation, the broker reserves the right to change the value of the UDS parameter for the KPUR and KURS clients, up to which the forced closing of positions will be carried out. The actual value is disclosed on the website.

The broker will additionally withhold a commission for forced closing.

Risks of using incomplete coverage transactions for an investor

Risk is a noble cause. Using unsecured transactions, really, provides many opportunities. However, it is always worth remembering about the effective combination of the chosen strategy and the associated risks..

The rules here do not differ from the basic recommendations for investing in the securities market.:

– Create and follow an individual investment strategy.

– Diversify your portfolio, combining papers from different industries, regions, currency.

– Based on the goals, determine the willingness to take risks and the "comfortable" level of possible losses.

– Correlate risk / reward parameters - build a plan, based on the risk profile, market volatility and investment horizon.

– Place a stop loss - the level of entry and exit from the position is the optimal risk, which will limit possible losses or, vice versa, close a position when a certain level of profit is reached. Remember, that without this action, the amount of possible losses is not limited.

More useful information for investors you will find on BCS Express.

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