Trading with the Dynamic margin: How it works
Last Update May 29, 2023
The dynamic Margin developed by Directa allows for:
1. making purchases by committing only a margin, rather than the entire value of the transaction (long positions);
2. selling securities that are not owned, i.e., short selling, and buying them back later (short positions);
3. utilizing a percentage of the value of the securities in the portfolio as additional available liquidity, usable both for the purchase of stocks and CWs, and as margin for short sales.
The different option represented by turbo margin, which allows for operating with half margins on a selection of securities and is valid precisely from the opening of the stock exchange session until 5:30 pm, remains usable only in intraday mode.
For short sales, which still require the granting of a securities loan even if the intention is to operate intraday, the position can remain open beyond the day as long as the loan remains available, and in this case, it will be up to the client to decide autonomously when to close the position and with it the loan and related interest.
To illustrate the mechanism of margining, let's assume we are trading Generali, which has a margin requirement of 20%, and examine two cases (for simplicity, we don't consider commissions or capital gains taxes):
Case 1) The available cash on the account is 10,000 euros, but dynamic margining makes it sufficient to purchase Generali for a value of 50,000 euros. The financing used will then have to be repaid, for example by selling Generali, or any other security, for a value of 40,000 euros.
Case 2) In the portfolio, there are Generali shares worth 10,000 euros. Thanks to dynamic margining, the available funds increase virtually by 8,000 euros, equal to 80% of the value. With 8,000 euros, it is possible to purchase Generali for 40,000 euros, allowing the portfolio to be increased up to 50,000 euros, as in the previous case.