How does the leverage ratio change before and after Earnings are released?
Two days before a company's Earnings are released, the leverage for new deals on its stocks in R StocksTrader is automatically reduced. Existing open positions are not affected. The leverage is restored to its original level the day after the Earnings are released.
Before providing a specific example, read this article to review important definitions such as Equity, Margin, Free Margin, and Unrealised P/L.
Example:
Day 1:
Conditions: The client deposits $10000 into their trading account.
As a result, the current state of the client’s account:
- Deposit: $10000
- Margin: $0
- Unrealised P/L: $0
- Equity: $10000
- Free Margin: $10000
Day 2:
Conditions: The client buys 1 share of COST.nq for $1041.01, with leverage of 1:20.
As a result, the current state of the client’s account:
- Margin: $52.05 (Price of financial instrument/Leverage, i.e., 1041.01/20)
- Unrealised P/L: $-5.60
- Equity: $9994.40
- Free Margin: $9942.35 (Equity – Margin, i.e., 9994.40 – 52.05)
Day 3:
Conditions: COST.nq stock price dropped to $1034.78.
As a result, the current state of the client’s account:
- Margin: $52.05
- Unrealised P/L: $-7.60
- Equity: $9992.40
- Free Margin: $9940.35
Day 4:
Conditions: COST.nq stock price is $1037.03. The client buys 1 additional share, but leverage has dropped to 1:4 (due to the upcoming COST Earnings the next day).
As a result, the current state of the client’s account:
- Margin: $311.31
- Unrealised P/L: $-10.84
- Equity: $9989.16
- Free Margin: $9677.85
Note: The margin includes the sum for both open positions — the one opened on Day 2 (1041.01/20) and the one opened on Day 4 (1037.03/4): 52.05 + 259.26 = 311.31.