November 2024 – Saxo Bank, a leading global investment bank, has announced the launch of its Portfolio-Based Margin (PBM) model, an advanced alternative to the standard margin system for professional clients. The PBM model offers significant benefits, including risk netting across various product types and positions, and the ability to optimize margin requirements based on a portfolio’s overall risk exposure.
The PBM model is designed for clients who combine multiple positions across different instruments and strategies. Unlike traditional margin models, which apply predefined margin requirements to individual positions, the PBM model calculates the total risk of a portfolio based on the collective exposure to underlying risk factors such as equity instruments, indices, and ETFs.
Key Features of the Portfolio-Based Margin Model:
- Comprehensive Risk Netting: The PBM model links instruments based on the same underlying risk factor, offering margin reduction by recognizing the net risk exposure across positions.
- Advanced Margin Calculations: Rather than applying static margin requirements to each position, the PBM model estimates the greatest possible loss on the combined exposure, ensuring more efficient margin management.
- Product Flexibility: The PBM model supports a broad range of instrument types, including stocks, stock options, CFDs, futures, futures options, and index options.
- Ideal for Complex Strategies: Professional clients who trade multi-leg options strategies, such as butterflies, condors, or calendar spreads, will benefit from improved margin optimization and reduced requirements.
Who Can Benefit?
The Portfolio-Based Margin model is especially suited for professional traders who:
- Use a diverse array of instruments across multiple asset classes
- Employ complex options strategies not recognized by the standard margin model
- Trade CFDs alongside options in the same underlying risk factor
- Participate in calendar spreads and other sophisticated risk-reduction strategies
How It Works
The PBM model assesses the total risk of a portfolio by evaluating all positions linked to a common underlying asset, such as Tesla stock or the S&P 500 index. By aggregating the exposure across different asset classes and instruments, it calculates the margin requirement based on the overall risk, rather than applying margin to individual positions separately. This approach allows for more efficient capital allocation and greater flexibility in managing risk.
Risks to Consider
While the PBM model offers increased leverage and margin efficiency, it also carries potential risks:
- Increased Leverage: Professional clients may experience higher leverage, which could amplify both gains and losses.
- Fluctuating Margin Utilization: Margin requirements can vary based on market conditions, which may lead to higher fluctuations in margin utilization.
- Stop-Out Implications: The model may affect the stop-out method, requiring careful risk management.
How to Enable Portfolio-Based Margin
To enable the Portfolio-Based Margin model, professional clients must meet specific criteria and follow a simple process:
- Obtain Professional Status – Ensure that you qualify as a professional client based on Saxo Bank’s requirements.
- Read the Disclaimer – Carefully review the risks associated with the PBM model.
- Submit Documentation – Sign and submit the risk disclaimer, either through the platform or by contacting a Saxo Relationship Manager directly.
For more information on how to take advantage of the Portfolio-Based Margin model and optimize your trading strategy, please visit Saxo Bank’s platform or contact your Relationship Manager.
About Saxo Bank
Saxo Bank is a leading online trading and investment specialist, providing cutting-edge trading platforms and financial services for individual investors and professional traders worldwide. With a wide range of products and services, Saxo Bank is dedicated to empowering traders with the tools, technology, and resources they need to make informed financial decisions.