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:
*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)
*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. 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.