tells you everything you need to know about this stock. The margin required is a function of the volatility of the share. The counter party (OST) will want to avoid a margin call if possible, so they make sure they have your position covered for most scenarios. Right now, they are pricing in the possibility of a 40% swing on the stock, but setting the margins at the level they have (if my calculations are correct?)
AGL is volatile as all hell and has a CFD ratio OF 13:1. LONMIIN was almost 1:1 a little while ago. Forced me to take all shares - probably a good thing. I suspect it has to do with the contract not following the share consolidation. Ask SBG! I would be interested to know.
doesn't it? Why not. Think about it from the counter party's point of view. They lend you script which you promise to buy at a later date - you place a margin as security. Now if your position value drops below your cash balance - you will have a margin call made - i.e. you owe them more money than what is in your account. Now they have to actually go get this from you somehow - which will involve lawyers' blah blah blah. So naturally they want to be able to take action long before you reach this point. They do this by building sufficient fat into the margin they set. Now the more volatile the share - the bigger the margin.
@skaap,Ignoring your withering sarcasm, bank do not rely on margins to protect themselves, In worst case scenario, bank hedge them via the "delta". You should try CFA, it will help you to think outside the box.
@simon, let me answer your question, with something you told me on this forum. What did you mean when you said that " IG market do not hedge themselves and they pass 100% of the risk to the customer", unlike SBK.
based on what, delta? coz a CFD has no delta, that a function of an option (black scholes) ? if anything a CFD delta is 1 hence they hedge 100% right up front .. futures delta slightly below 1 as they bill the interest up front .. Q is do they do it individually for the client or the stock and net off ? still no delta ..