INVESTMENT OPPORTUNITY IN FOREX, FOREX OPTIONS & COMMODITY MARKETS SINCE 1988.


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HOW MARGINS WORK

*Margin policies will vary by FCM/Dealer, and the information on this webpage should be used for informative purposes only.  Please contact us for dealer specific margin information.

Margins are equity deposits that ensure the credit-worthiness of both parties of a forex contract.  "Initial Margin" is the term used to describe the minimum equity amount that must initially be in a client's forex trading account to open a long or short position in the forex market.  Once a forex position is open, it is acceptable if the client's forex trading account balance drops below the initial margin requirement.  However, the forex trading account balance must remain above the "Maintenance Margin" requirement.  The "Maintenance Margin" is the minimum equity amount a forex client must have in his or her account before a "Margin Call" is generated.  A "Margin Call" is a request from a forex broker or forex dealer for additional client funds to further guarantee performance on a forex position that has moved against the client.  At the discretion of the FCM/Dealer, margin rates may be increased from time to time, especially before a weekend or holiday, to account for unexpected price volatility that can occur while the foreign exchange markets are closed. The actual margin levels and policies are outlined in the account opening documentation and are the decisions of each FCM's/Dealer's credit committee. 

*Please note that margin calculations may vary for direct rates, indirect rates and cross-rates. 

Please click on the appropriate link for more information:

Forex Spot Margins
Forex Option Margins
Margin Call Policy

 

 

FOREX SPOT MARGINS

 

*Leveraged trading can lead to potentially large losses as well as gains. Risk Disclosure

 

CFOS/FX clients can utilize leverage of up to 50:1 in the forex spot market (depending on which type of account you open).  This simply means that an investor can leverage a spot forex contract worth $10,000 with an initial margin requirement of only $200. 

 

Margin requirements will vary by FCM/Dealer.  Any or all positions in a trader's account may be closed if the trader's account balance falls below the maintenance margin (margin call level) and the client fails to immediately satisfy a margin call via wire transfer.

 

Forex spot margins are calculated as follows (assuming 50:1 leverage):

 

contract size   X   .02   X   spot rate   =   initial margin requirement

 

For example, to buy or sell 100,000 EUR/USD at 1.1705 the initial margin requirement would be calculated as follows:

 

$100,000 (contract size)   X   .02 (50:1 leverage)   X   1.1705 (spot rate)  =   $2,341.00 USD (initial margin requirement)

 

 

FOREX OPTION MARGINS

 

*Leveraged trading can lead to potentially large losses as well as gains. Risk Disclosure

 

Selling a forex option contract requires the seller to meet initial margin requirements.  Forex option margins are delta-based (using the standard 2% spot margin requirement) and are generally calculated as follows:

 

option contract size   X   option delta   X   .02   X   spot rate   =   initial forex option margin requirement

 

For example, if the EUR/USD is trading at 1.1705 and the respective at-the-money EUR/USD 1.1700 call has a delta of .5, the initial margin requirement would be calculated as follows:

 

$100,000 (contract size)   X   .5 (option delta)   X   .02   X   1.1705 (spot rate)  =   $1,170.50 (initial margin requirement)

 

Forex option deltas are usually listed along with the quotes on the forex options trading platforms. 

 

Please note: depending on the FCM/Dealer, you may be required to post a nominal margin (in addition to the premium paid) to purchase options.

 

*CROSS-MARGINING: Please note that spot and options positions are cross-margined (risk from all open positions in a currency pair are totaled into one aggregate margin amount). 

 

Margin requirements will vary by FCM/Dealer.  Any or all positions in a trader's account may be closed if the trader's account balance falls below the maintenance margin (margin call level) and the client fails to immediately satisfy a margin call via wire transfer.

 

MARGIN CALL POLICY

As permitted within the scope of National Futures Association (NFA) and Commodity Futures Trading Commission (CFTC) regulations, the FCM/Dealer may, at its own discretion, close any or all open positions in a forex trader's account in the event that the trader's forex trading account balance falls below the maintenance margin level.  At the discretion of the FCM/Dealer, margin rates may be increased from time to time, especially before a weekend or holiday, to account for unexpected price volatility that can occur while the forex markets are closed.  It is the customer's responsibility to monitor and maintain his or her margin account balances at all times.  Margin policies are further explained in the respective FCM/Dealer Customer Agreement.


 

 

 

 

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Disclaimer: Forex options trading and forex spot trading carry a high level of risk and are not suitable for everyone.  The possibility exists that you could sustain a loss of all or more of your forex trading investment.  Before trading forex options or spot markets you should be aware of all risks associated with forex trading.  For more information about the forex option trading risks, forex spot and online forex trading risks please contact a CFOS/FX forex option broker to discuss online forex option trading and spot trading risks in detail.  CFOS/FX is a forex option broker and forex spot broker offering online forex trading platforms in both spot forex and forex option trading markets.  The brokers at CFOS/FX broker forex spot and broker forex option trading for retail and commercial forex clients.  CFOS/FX acts only as a forex introducing broker and does not actively manage forex trading accounts for clients.  Regarding forex counterparty, CFOS/FX is a forex option broker and spot forex broker acting an forex introducing broker and not as counter-party for client forex spot trading or forex option trading.  The respective FCM/Dealer holding client funds acts as counterparty.

 
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