Z1/2/12 and the new ESMA regulations

Are Z1/2/12 still promising with the maximum leverages for retail traders due to the new ESMA regulations?

i think the leverage is not a problem for the strategies,but the margin for opening several trades could be a huge problem. I dont know how to handle this.

The best way to avoid ESMA is opening an account in a non-european broker, for example Dukascopy Bank or GlobalPrime.

I haven't tested the impact of ESMA in Z1/2/12 yet, but it'll surely reduce the number of possible open positions.

Hi jcl. I would appreciate your thoughts on this ESMA change. I'm told it applies to anyone with a European broker, even if they themselves are not in Europe...

Specifically,

a) The impact on the Z systems.

b) If Zorro will be able to handle the margin problem, or if each of us will have to individually code this in every strategy.

Thanks.

Didn't your broker already announce the changes to you? Then I guess you are not affected, those changes have to be realized till 1st of next month and the (regulated) brokers I trade with sent at least 3 mails the last week concerning the changes.

Hi Sphin. Yes, I have mails. And would appreciate jcl's insights as to the impact on Zorro in general and the Z Systems in particular.

I.e., what will happen if one doesn't make a change...

Or should one absolutely make a change?! I.e., stop trading with European brokers immediately because the Z Systems and Zorro's performance is compromised by these changes?

Thanks.

Smaller leverage means smaller profit.

Yes. But what about the margin issue? One broker's example is an account with $2000 balance. Open a trade that requires $1000 margin. If account equity falls to $500, all positions are closed. Do the Z Systems and Zorro handle this?

Thanks.

Yes, that's why you'll get smaller profit.

Great! Then, how do I set this up for Testing?

For ESMA impact #1, I can adjust AssetsFix.csv to account for the lower leverage.

What do I do for ESMA impact #2 (the 50% margin "stop")? The latest word I have from FXCM is that if account equity falls below 50% of the total margin of all trades, opening new trades is prevented until equity returns above. What flag/setting/whatever do I set to say Test in ESMA mode?

Thanks.

Maybe looking the maximum drawdown report and keeping more money on your account?


And smaller risks as Zorro automatically increase the lot size with high leverage. Equity will move faster and expired systems or systems that not behave like the test will wipe out you sooner.

Sadly I loose a lot of money with Z12 system. Not sure what happened, I was trying MT5. But I wouldn't give another chance to these systems, I will try using my own.

Hi jcl. So, how do I Test my strategies and the Z Systems with the ESMA margin limit above?

I.e., even though there is equity available in the account, ESMA now won't let me use it if that equity is less than 50% of the currently used margin. What flag do I set to run Tests this way?

Thanks.

If you need additional 50% margin, then use 50% higher Margincost.

Thanks jcl. Yes, this is a partial workaround, but doesn't really address the issue. For example, for all trades that never go negative during their lifetimes, the 50% additional MarginCost is wasted, preventing trades or lowering the size of entered trades.

Is there another solution that is less restrictive and closer approximates the ESMA situation?

Thanks.

Your broker requires the 50% extra margin only for trades that went negative?

No, the broker requires that account Equity be >=50% of Margin used. If Equity falls below this level, new trades are prevented, etc.

So, if the trades are on aggregate winning, this doesn't matter. It will only come into play when enough open trades have gone negative by an aggregate amount sufficient to take Equity down that far.

Thanks.

Hmm, the account equity must normally cover 100% of used margin, not 50%. Or did you mean 150%?

Well, I could certainly be misunderstanding...

Here is the relevant section from the announcement I received:



To me, this reads like Margin Call now happens at 50% of (aggregate) initial margin requirement, not $0...

Thanks.

To me, it reads as if the real margin requirement is only 50% of the listed margin. To simulate that, just reduce the margin cost by half.

If I reduce Margin cost by half, won't that just double the lots entered? Keeping total Margin used the same? How does that accomplish the Equity < 50% of Margin trades closeout?

Thanks.

Yes, it doubles the lots, which is just the purpose of a reduced margin. Zorro does not close out trades, it stops trading when the equity gets dangerously close to the used margin.

So in this case, 1/2 the margin cost * double the lots = same used margin - i.e., no change.

The issue here is that due to ESMA the broker is imposing a new, more strict definition of "dangerously close" as well as closing trades when that happens.

I gather Zorro has nothing built-in to accomodate this, correct?

Thanks.

I suppose this is a normal practice of brokers called "Margin Call". Zorro can simulate it.