This article explains the risk control mechanism of Longbridge Securities' margin financing.

When you operate margin financing, it will affect your account risk. In order to help you understand whether your account is currently at risk of being liquidated, you can check the risk control status of your account in Longbridge App > Assets > Financing Status.

Note: Applicable versions are 4.0.1 and above.

1. Risk control status

An indicator to measure the risk status of your account. The risk control status is divided into 4 levels: Safe, Medium, Warning, Dangerous. (The example in the figure below is for reference only.)

Safe

Unused financing.

Medium

Financing has been used, and equity assets are greater than the initial margin requirement; judging from the current leverage ratio of the account, the higher the current leverage ratio, the higher the risk.

Warning

If the equity assets are less than or equal to the initial margin requirement and greater than the maintenance margin, the buying power has been exhausted at this time and no new positions can be opened; please pay attention to the position risk. If there is an amount of Margin Call due in the account, please replenish funds or sell stocks in time to make up for the arrears.

Dangerous

Equity assets are less than or equal to the maintenance margin requirement. In this status, you shall deposit sufficient funds or actively reduce some positions to meet the Margin Call due by the deadline of 14:00, otherwise your account will be subject to forced liquidation. The broker has its own discretion to determine which stock to liquidate, price, quantity, and timing of the liquidation. Please pay attention to indicators such as risk control status and leverage.

2. Field explanation

• Initial margin requirements: The margin required for financing is calculated according to the initial margin rate of the market value of the stock held. When equity assets are less than the initial margin requirement, buying power is exhausted and new positions cannot be opened.
• Maintenance margin requirement: Maintenance margin requirement = Account holding market value × Account holding asset maintenance margin rate. When the equity assets are less than the maintenance margin requirement, the account will be triggered to be in a dangerous status and it is necessary to liquidate some stocks or deposit funds.
• Equity assets = Total securities value + Total cash value + Total value of Cash Plus

Key takeaways:

• Risk level:
  • Safe (unfinanced) → Medium (controllable leverage) → Warning (prohibit opening positions) → Dangerous (risk of forced liquidation)
• Core indicators:
  • Initial margin: minimum requirements for opening a position (new positions are prohibited when equity assets ≤ initial margin)
  • Maintenance margin: position red line (forced liquidation will be triggered when equity assets ≤ maintenance margin)
  • Equity assets = Securities + Cash + Total value of Cash Plus
• Countermeasures: Dangerous status requires replenishing funds or reducing positions before 14:00 on T day

Disclosure

This article is for reference only and does not constitute any investment advice.