SDX Interest Rates Help > Working with SDX Interest Rates > Adding a Margin

Adding a Margin

A margin (or sales markup) is the difference between the cost price of a product and its selling price. Adding a margin to a product's cost price therefore lets you create a profit. It is usually expressed either as an amount or as a percentage (of the notional amount) added to the market price or market rate (dependant on the instrument type).

Adding a margin to an instrument in effect widens the spread of the instrument's price. This is because the margin is deducted from the bid price and added to the ask price.

In SDX Interest Rates you can define a margin in the Single Option page for any instrument. Once you have defined a margin, to see its effect on the price you must then click the Calculate button.

For most instruments, the system will then calculate the price including the given margin (or spread) and display it in the Market Rate or the Market Price result (as relevant for the current instrument).

The exception is for a structure where you can define your own market rate, if you do define both a margin and your own market rate. In that situation, the system displays the price including the margin in the Sales Rate result. It does this so it can leave the Market Rate result as you defined it.

 
The margin feature is not automatically enabled for your user. To enable or disable this feature for your user contact [email protected].
If you do define a margin for an instrument and then deal capture that trade into SD-XA or a third-party management system, currently the system does not send the margin information. Instead it just sends the market rate or price on its own, without the margin.

Defining the Margin

You define any margin in the Margin textbox. For most instruments you can also define if the margin is to be defined as an amount or a % using the Amount <> % button. However, for some instruments, e.g., the structured swaps, you can only define the margin as a percentage.

If a notional is defined and you have calculated the instrument, if you then toggle between the two margin definitions (i.e., between amount and %), the system will translate your given margin from one definition to the other. However, if no notional is defined, then when you toggle between the two margin definitions, the margin is simply removed for the second definition.

For an option, this is a straightforward conversion between the amount and percentage. For example, you enter into a 1y vanilla swap, your notional is 1m and you define a margin of 1%; if you then want to see what this 1% margin is as an actual amount, clicking the Amount <> % button will display 10,000 (i.e., 1% of 1m). However, if no notional is defined when you toggle between the two margin definitions, then the margin is simply removed.

However, for a supported swap, in converting the margin between an amount and a percentage the system also takes into account the discounting of the cash flows across the coupons. For example, you enter into a 1y vanilla swap, your notional is 1m and you define a margin of 1%; if you then want to see what this 1% margin is as an actual amount, clicking the Amount <> % button will display 10,085.