Leverage and Margin in eXimius When Working with Derivatives

As we said some post ago, Our front office system eXimius can be very useful to manage derivatives and help getting MiFID II compliance. We wrote about hedging, diversification, modelling, and rebalancing derivatives investment portfolios; today it’s time to add something more.

Derivatives and Leverage

Derivative prices are linked to the price of underlying assets, and opting for the derivative instead of directly trading the actual asset typically allows for increased exposure. Because of this leverage, derivatives are typically most valuable in volatile markets.

eXimius can calculate both gross and net exposure, which provides insight to the absolute leverage and netted leverage of an investment portfolio. These figures can be combined with a target leverage factor to actively manage and track the leverage of an investment portfolio.

Derivatives Leverage in eXimius

eXimius at work with gross and net exposure, to help calculating the actual net leverage of a portfolio.

Getting the basic leverage right and paying attention to potential events is paramount for all clients.

Derivatives and the Margin

Portfolio management using derivatives requires efficient monitoring of margin requirements vs. available collateral to enable efficient derivative accounting. Cash or securities constitute collateral required for establishing and maintaining derivative investments. Losses in the portfolio can cause the margin requirements to exceed the available collateral. This will trigger a margin call to the account holder, who is required to deposit additional securities or cash or restructure the investment portfolio.

Tracking the level of margin and collateral of an investment portfolio is an indispensable tool to allow to the investment manager to avoid triggering margin calls on the client’s accounts. The current buying power of an investment portfolio reflects the total amount of available collateral in comparison to the margin requirements of the portfolio. Collateral will be created out of all long cash and security positions, while margin requirements can be established via short positions, minimum margin amounts to be held, variation margins or loans.

Derivatives Margin and Buying Power

Tracking the level of margin and collateral of an investment portfolio is an indispensable tool. eXimius does it.

Derivatives and the Next Year

In a next installment we’ll talk about trading options offered by eXimius. Maybe it will be in 2018… so, just in case, please accept my best wishes for the holidays!

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