How can I enable short selling and margin trading on my account?
This article provides agents with detailed instructions to enable customers for short selling and margin trading, including eligibility criteria, application steps, required documentation, risk disclosures, and troubleshooting.
Overview
Short selling allows customers to sell securities they do not own by borrowing them, while margin trading (portfolio borrowing) lets customers trade with borrowed funds against their portfolio as collateral. Both features carry additional risk and regulatory requirements. Activation requires explicit consent, risk assessment, and certain account settings.
Eligibility and prerequisites
- Account type: Available for standard Share and Fund accounts and certain ISK accounts where permitted by law and product rules.
- Customer suitability: Customer must pass a suitability assessment covering experience, financial position, and understanding of derivatives and leverage.
- Active trading history: Some cases require a minimum trading activity or asset level.
- Signed agreements: Customer must sign margin and short-selling agreements and accept additional terms and risk disclosures.
Step-by-Step Activation
- Assess suitability: Use the standard suitability questionnaire. Document answers in the CRM inside Product Activations table. If the customer fails the test, explain restrictions and alternative options.
- Review required documentation: Review uploaded documents containing customer information. Task to be executed by the Documentation Team.
- Send agreements: Issue the margin/short-selling agreement via the secure signing system. Confirm customer acceptance electronically.
- Check collateral and limits: Verify customer collateral level meets internal thresholds. If insufficient, advise on additional deposits or reduce requested leverage.
- Set margin limits and stop-out levels: Configure internal limit values including initial margin, maintenance margin, and stop-out percentage. Enter limits in the trading backend.
- Enable permissions: Switch on short selling and margin trading permissions in the account profile. Log changes in audit trail.
- Confirm market access: Ensure customer has access to markets where shorting or margin is permitted and inform them about eligible securities lists.
- Provide risk education: Send educational material about leveraged trading, including worst-case scenarios and margin calls process.
Important Notes and Warnings
⚠️ Warning: Margin and short positions can result in losses exceeding the initial investment. Customers must be explicitly informed and consent documented.
⚠️ Regulatory limits: Some securities cannot be shorted due to market rules or stock lending availability. Also regulatory capital requirements may limit margin for certain customers.
Risk Management and Monitoring
- Daily monitoring: Margin positions are monitored daily; positions that breach maintenance margin may trigger margin calls or forced liquidation.
- Automated alerts: Configure automated notifications for margin calls, stop-out warnings, and failed margin payments.
- Forced liquidation policy: Outline when positions are automatically closed to protect credit exposure.
Frequently Asked Questions
Q: How quickly can permissions be enabled?
A: If suitability and documentation are in order, permissions are usually enabled within 1-2 business days.
Q: Can ISK accounts be used for short selling?
A: Generally short selling is restricted in ISK due to tax and product constraints. Use a Share/Fund account for short operations.
Q: What triggers a margin call?
A: A margin call occurs when the account equity falls below the maintenance margin requirement. Notify the customer immediately and provide options.
Troubleshooting
| Issue | Solution |
|---|---|
| Customer fails suitability test | Offer training resources, simulated trading, or restrict to lower leverage options until experience is gained. |
| Short sell request rejected | Check stock lending availability and market restrictions. If unavailable, explain and suggest alternative instruments. |
| Unexpected forced close | Review margin call history, settlement timings, and last price feed. Escalate to risk team if needed. |
Related Information
- How to open a Share and Fund account
- Margin call procedures and timelines
- Derivatives trading activation
Agents must always document all steps, keep complete audit trails, and escalate to the risk or compliance teams for edge cases or suspicious activity.