Margin: Why Your Position Can Be Closed Without Your Involvement

Margin is not a fee paid to the broker and not a part of the asset's price, but a sum in your account that is blocked against the risk of a position already open. The key words here are "already open": margin is checked not at the moment you enter the trade but continuously, for as long as the position exists. That is why a forced close-out does not require your consent and is not a punishment: from the standpoint of market infrastructure, a margin shortfall is an uncovered obligation, and the system is obliged to close it on its own while the loss is still smaller than your money. The formal definition is set out in the glossary entry — margin.

What exactly is blocked, and what it is not

When you buy a share outright with your own money, no margin is needed: the trade is fully paid for, and there is nothing to lose except the asset itself. Margin appears wherever an obligation arises that is not covered by the cash or securities in the account: a leveraged purchase, a short sale, a futures contract or an option. In these cases you are not paying for the position, you are guaranteeing it.

Several consequences follow from this, and they run against everyday intuition. Margin is not debited and it remains yours — it is blocked and returns to your free balance when the position is closed. It does not cap your maximum loss: on a futures contract or a short you can lose more than the blocked amount, and this is precisely why margin is recalculated rather than set once and for all. And it is not a charge for leverage: the cost of carrying a position is a separate matter that has no direct bearing on the size of the margin.

Who calculates the amount, and why it changes by itself

The size of the margin is set not by the broker at its own discretion but by the central counterparty, which stands between buyer and seller and takes on the risk of default. The broker adds its own requirements on top — its own risk rates and its own thresholds, usually stricter than those of the exchange.

The formula is simple in its logic: margin has to cover the price move that the instrument is capable of making in the time needed to liquidate the position. Hence the reasons why the requirement rises without any action on your part:

• the instrument's volatility has increased — the price range that has to be covered has become wider;
• liquidity has fallen — the position can no longer be closed at a nearby price, so a larger cushion is needed;
• an event with a known date is approaching: an earnings report, a record date, a regulator's meeting, an expiration;
• the client's risk category has changed, or the instrument itself has been moved to a different trading mode.

The recalculation does not happen at an arbitrary moment but in clearing — the intraday session and the evening session. This is why the requirement can change in the middle of the day, when the price has not yet moved: the structure of the trading day determines exactly when the new rate becomes binding for you.

What the moment of close-out looks like

The mechanics come down to comparing the value of your portfolio with several levels of requirements.

Step 1: the portfolio value falls below the initial requirement. You can no longer open new positions; nobody will touch the existing ones.

Step 2: the value falls below the minimum requirement. This is the margin call — a notice inviting you to deposit money or reduce the position yourself.

Step 3: the margin has not been restored. The broker closes part of the positions by force, at market prices, without agreeing the order or the prices with you.

The most unpleasant feature of step 3 is that it is triggered at the worst possible moment by definition. A sharp move simultaneously shrinks your portfolio and raises the margin requirement, because volatility has gone up. The distance to a forced close-out narrows from both sides at once. So a cushion calculated at the calm-market rate turns out, under real stress, to be smaller than you thought.

Where margin behaves most treacherously

In an illiquid instrument the risk rate is higher, and the forced sale itself weighs on the price — the close-out takes place at noticeably worse levels than those you saw in the order book before the event. In long-dated bonds a different mechanism is at work: the sensitivity of the price to interest rates is set by duration, and a shift in the regulator's rhetoric can reprice the position before you have time to react — this is worth reading together with the guide to the central bank's signal. And if the collateral is securities rather than cash, then under stress both your asset and its valuation as collateral fall, because the haircut widens.

What is genuinely in your power

Check the requirement before you enter, not after: an instrument page such as SBER and the broker's terms give the current rate, and this is the only correct reference point. Keep a free balance rather than loading the account to the limit — the cushion is needed not for an ordinary day but for the day when the rate goes up. Know the calendar dates for your positions: the events calendar shows where the requirement will almost certainly be raised in advance. And reduce the position yourself at step 2, while the choice of price and instrument is still yours.

Specific margin rates for individual instruments are deliberately absent from this article: they change and are set by the broker and the central counterparty, so any number given here would be out of date before you read it. The only reliable source is the current terms of your agreement and the exchange's risk rates for the date in question.