Margin
Overview
What is the margin?
- Derivatives are highly-leveraged and highly-risky products, and derivatives trading can cause a high risk of loss. Therefore, many Exchanges introduce a guarantee system to ensure the fulfillment of settlement obligation of market participants. The Korea Exchange and its member companies require investors to deposit an amount equivalent to the maximum risk exposure of their positions in the market ("Margin") as an assurance against settlement default. The KRX acts as counterparty in every transaction carried out in its Derivatives Market and asks investors to deposit certain level of margin based on the size of orders and positions they hold.
Types of margin
Margin is categorized by paying entity and time of payment.
By paying entity
- "Member Margin" is paid by member companies to the KRX.
- "Customer Margin" is paid by customers to member companies.
By time of payment
- "Pre-Margin" is collected before accepting order.
- "Post-Margin" is collected after the end of trading at the market.
Member Margin is subject to Post-Margin. However, with regard to Customer Margin, currently only Qualified Institutional Investors who are deemed to have adequate capability to fulfill the settlement obligations are subject to "Post-Margin."
Composition of Customer Margin
Pre-Margin shall be an amount exceeding the sum of each of the following amounts;
- amount equivalent to sum of the orders,
- amount equivalent to net risk exposures based on the previous day,
- amount equivalent to net loss of the day,
- net settlement amount of the day.
Post-Margin shall be an amount exceeding the following amounts;
- amount equivalent to net risk exposures based on the day,
- net settlement amount of the day.
※ For more detailed information concerning the KRX margin system, please refer to the KRX Derivatives Market Business Regulation (http://eng.krx.co.kr).
Management of margin rate
- The margin is determined by the level of the amount of maximum net loss that may sustain when the price or value of underlying asset changes to a specified level.
- Thus, the margin rate applied in the Derivatives Market is adjusted on the basis of objective factors such as the price volatility. However, it is determined by taking into account other subjective factors such as the characteristics of derivatives product and market conditions.
- To apply margin rate in a timely manner, margin rate is reviewed every quarter, if it is deemed necessary to adjust the margin rate, the rate is adjusted. Whenever the market condition changes suddenly, the margin rate may be adjusted by reviewing the appropriateness of margin rate in use.
※ Data and information on the KRX website are provided for the purpose of improving availability of information for investment, not for trading securities. In spite of the efforts made in ensuring the accuracy of data and information, the KRX recognizes that unintentional and chance errors and delays occur. The KRX is not responsible for any loss resulted from the investments made using the data and information provided on its website.
