When a forward contract is booked with iBanFirst, the value of such a contract depends on the direction of the spot rate. The value of your contract can be positive, negative, or neutral.
If the contract is cancelled at any point in time, this can result in a gain, a loss, or breakeven depending on market conditions.
The value of the contract evolves over its lifetime, and the collateral requirements are meant to cover any future potential losses. Losses may occur if the contract is cancelled before its maturity or in the event of a contract breach. Failure to meet collateral requirements or to perform at maturity of the contract constitutes contract breaches. For the full list of contract breaches, please refer to the applicable terms and conditions.
Collateral requirements are composed of the initial deposit and margin calls.
Initial deposit
You will be asked to pay an upfront deposit, expressed as a percentage of the notional amount that you have dealt, in order to secure iBanFirst against any future financial loss we may incur as a result of entering into a transaction with you.
The initial deposit parameters may vary depending on the maturity of the forward contract, the currency pair, and your specific setup. These parameters are detailed on your Collateral account screen.
Initial deposit parameters can be reevaluated at iBanFirst’s sole discretion depending on market conditions.
Mark-to-market
When you book a forward contract with iBanFirst, we calculate its market value on a daily basis in order to determine the difference between the original cost of buying the contract on your behalf and the present value if we have to sell it back.
This is known as the mark-to-market value. You can find the mark-to-market value of each of your forward contracts on the Transaction details tab of your Collateral account screen. The total mark-to-market is netted and corresponds to the sum of the mark-to-market of each of your forward contracts. For example, if you have two forward contracts with respective mark-to-markets of €500 and -€100, your total net mark-to-market is equal to EUR 400.
Margin calls
When the value of your total mark-to-market with us is negative, we calculate if any deposit we hold is enough to cover the negative position value. We may seek to remove that additional risk by requesting you to post some extra collateral as security. This amount of extra collateral is known as a margin call. Margin call details can also be found on your Collateral account screen.
How much time do I have to meet collateral requirements?
You have up to 2 days to meet your collateral requirements. If your collateral requirements are not met within 2 days, we will freeze your account with us, prohibiting any new transactions until payment is received. We may also initiate any legal procedures necessary to recover the amounts required from you, as per our Terms and Conditions.
How do I post collateral on the iBanFirst platform?
Once you have topped up your iBanFirst account with the sufficient amount, go to the Collateral account and click on Credit / debit account to post collateral to your account.
When and how can I retrieve the collateral posted?
Collateral requirements are blocked on your collateral account. The initial deposit will be released at contract maturity or as the maturity of the contract grows nearer if applicable. Any collateral held in the form of a margin call is calculated daily and is released when not necessary to cover the negative value of the contract. You can transfer the amount of released collateral to your main account at your convenience from your collateral account.
Why should I pay attention to my collateral parameters before booking a forward contract?
Collateral requirements will impact your cash flows, especially if the market moves significantly in an adverse direction, which may trigger high amounts of margin calls. You must also keep in mind that the further away the maturity of the contract, the greater the risk of the market moving in an adverse direction or of your financial situation evolving, and therefore for a margin call being more difficult to meet.