UK-based online brokerage, Trading 212, has announced a significant change to its margin requirements on stock CFDs. The rise to 50% margin will have a devastating impact on many trading portfolios. Find out how to prepare and any future considerations.
What’s Changing?
On Tuesday 1st December, at 14:30 GMT, Trading 212 will temporarily raise its margin requirements for all stock CFDs to 50%. This means that existing leverage will decrease to 1:2. Those with open positions may see the automatic closure of one or more of their positions if they don’t have enough free funds.
The broker claims that the change is to help protect itself against turbulent market conditions. However, whilst Trading 212 is able to change margin rates at its discretion, the move will raise eyebrows among traders and industry onlookers due to the serious negative impact it may have on some clients.
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Who’s Affected?
The change will affect blocked funds and free funds in trading accounts. It also affects margin status, i.e. the percentage that causes margin calls at 45% and position closures at 25% will be reduced.
The change only applies to stocks and CFD accounts. Other assets such as commodities, indices and forex in the Invest or ISA accounts are not affected. The value of a trader’s profit/loss is also not affected, but if any positions are closed as a result of the changes, then P/L will be reflected in free funds.
What To Do Next
You can calculate how much you will need to keep your positions open after the margin requirements increase. Leverage is decreasing to 1:2, which means margin requirements will be 50% (you therefore need 50% of the total value of the trade in order to guarantee your position). Trading 212 explains how to calculate this here.
Trading 212 clients have also shared a calculator on the forum (for stocks only) which calculates how much money traders will need to top up their CFD accounts. Note that while the calculator is not official, it may help traders understand the changes.
Final Word
The announcement has come as a shock to Trading 212 clients, with many concerned about the lack of appropriate warning. Furthermore, some traders may not have enough funds to cover the decrease in leverage if they wish to keep their positions open. As a result, the move may make some consider closing their Trading 212 accounts and looking elsewhere. And with many leading online brokers offering CFDs on stocks with competitive trading conditions, critics will argue this isn’t Trading 212’s finest hour.