Important Concepts

Important Concepts about margins and margin ratio

Concept What is it? Ratio for (1:1) clients Result

Initial Margin Ratio

It is the ratio of the client's capital to the total value of the portfolio (including margin) at the time of receiving the margin.

At inception, the ratio is 50% of the total portfolio value.

In case of profit, the client can transfer any profit which exceeds the initial capital

Maintenance Margin Ratio

Is the ratio of the client's capital to the total value of the portfolio (including margin) that if reached, will lead to the reduction of the client’s buying power.

The maintenance margin begins once the ratio of the client’s capital to the total portfolio value reaches 40%.

The Client’s buying power declines in proportion with the decline in the total value of the portfolio.

Margin Call Ratio

When the ratio of the client's capital to the total portfolio value falls to 30%.

The maintenance margin begins once the ratio of the client’s capital to the total portfolio value reaches 40%.

The Client’s buying power declines in proportion with the decline in the total value of the portfolio.

Liquidation Ratio

The liquidation ratio is the ratio at which the client’s capital to the total portfolio value reaches a point where some or all of the client’s positions will be liquidated.

When the ratio of the client's capital to the total portfolio value falls to 25%.

Some or all of the client’s positions are liquidated immediately without referring to the client.

Equity Ratings

Equity ratings are a measure of the efficiency of stocks which are provided as collateral against margin financing. The equity rating declines as the quality of the purchased shares or the intended shares falls; certain stocks aren’t considered for financing.

In addition, investment firms rate all listed shares based on historical performance. Margin clients are able to utilize the margin provided to them based on the rating of each company.

Example:
If the client’s capital is SAR 1 million and he receives a margin of SAR 1 million (maximum buying power becomes SAR 2 million), and the client intends to buy a stock with a rating of 60%, the client may use 60% of the maxium buying power to buy the share (SAR 1.2 million). If the client does buy into the stock using the maximum buying power (SAR 1.2 million), he will still be able to use the remainder of the buying power (SAR 800 thousand) to buy stocks with 100% rating, or use SAR 400 thousand to buy stocks with 80% rating, or a combination of both. It is important to note that should the client use the maximum buying power to buy stocks with 60% rating, he will not be able to buy any other stocks with 60% rating or less.

Derayah’s margin clients may view the latest version of Equity Ratings by logging into their portfolios on Derayah’s website