Saxo Bank has two different methods of margin calculation. The default method is Strategy Based Margin (SBM). With SBM, you can calculate yourself what your end-customer's margin will be using relatively simple formulas.
Portfolio Based Margin (PBM) is also available but you must request it specifically. PBM is based on scenario analyses and stress tests in which the most negative scenario determines the margin. You will not be able to calculate this yourself. In general, PBM leads to a lower margin requirement, which is why a number of investors opt for PBM. In this article you will find more information about how PBM works at Saxo.
Principles of PBM
Whereas SBM uses relatively simple formulas for margin calculation, the basis for PBM is scenario analysis. The shares and options in a specific underlying asset form the basis for calculating the margin requirement. In effect, different scenarios assess how the entire position would develop in the event of a certain movement in the underlying asset. For example, it looks at how a change of -2%, -4% and -6% in that specific underlying asset would impact the value of the shares and options. Based on these results, a margin amount is determined for each scenario. The margin amount used is based on the least-favourable outcome.
The following elements play a role in the risk assessment:
- Portfolio risk – a measure of the risk assigned to the portfolio expressed in margin;
- Derivatives risk – a mark-up on the margin for the interest and dividend risk in derivatives;
- Liquidity risk – a margin mark-up for a position held that exceeds the average daily volume;
- Volatility risk – a mark-up on the margin for shares where the quotation is lower than 2.00 (USD or EUR).
Option premium reservation
There is a premium reservation independent of SBM or PBM. This means that Saxo Bank applies the rule that a short option must always be redeemable. This option premium reservation therefore has a negative impact on the available spending margin. This rule is separate from PBM, but can lead to less spending scope.
Note: This also applies to short call options that are covered. Although these have no margin requirement, they do fall under Saxo Bank's rule that it must always be possible to buy back the short option.