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All foreign exchange contracts are traded on margin. This means that traders only have to deposit a small percentage of the value of the contact traded. The result of this is incredible leverage; providing traders the means to magnify potential trading profits much more than had they been required to invest the total face value of the contract traded.
The margin must be provided before any trade is executed. It is also prudent to deposit additional funds to cover any margin requirements should the trade not perform as expected.
If markets move against the trade, the margin covers the loss until that loss is actually realised. If markets move in favor of the trade, the margin remains in the account. If markets move against the trade and then return to profitability, the margin is returned.
Margin minimises risk for both the trader and the broker, as it limits the broker’s exposure as well as the amount the trader can lose in any given trade. It is a security buffer to ensure all market participants can honor their trading obligations.
NSFX Minimum Margin Requirements
Traders must maintain Minimum Margin Requirements at all times.
NSFX offers 1:100, and 1:200 leverage. This translates to margin requirements of 1.0% and 0.5% respectively.
Margin Calls – Marking to Market
All Forex trades are “marked to market.” This means that the position is monitored in real-time to ensure that losses are covered by margin and that profit positions are also easily ascertained.
Should, at any time, a Trader’s Equity equal or fall below 20% of the Used Margin for a Trader’s Account in total, NSFX will liquidate any part of or all Open Positions in a Customer’s Account. That is why it’s important to always maintain adequate margin cover and avoid receiving margin calls.
Closure of positions is performed on a best endeavors basis, with best execution always a priority. Similarly, NSFX will attempt on a best endeavors basis to contact the trader with an Equity Notification if their equity, at any time, equals or falls below 20% of the Used Margin.
Margin Requirement – Example
Following is an example of a real life forex margin and margin call.
Margin requirement depends on the leverage of the instrument – 1:100 or 1:200; and the USD value of the position.
For example, the USD value of a 10,000 EUR/USD (“Mini-Lot” or 0.1 Lots) position bought at price of 1.1000 will be:
- 10,000 X 1.1000= USD11,000. With a margin requirement of 1.0% (1:100 leverage), it will cost USD110 to open the position.
- If the EUR strengthens from 1.10 to 1.11 against the USD, the notional profit will be:
10,000 X 1.1100=USD11,100 less USD 10,000 X 1.1000=USD11,000 or USD100.
- If the EUR weakens from 1.10 to 1.09 against the USD, the notional loss will be:
10,000 X 1.1000=USD11,000 less USD 10,000 X 1.0900=USD10,900 USD or USD100.
To keep a losing position open, traders must have sufficient funds in their account to cover the marked to market loss.
Using the above example with a margin requirement of 0.5% (1:200 leverage), results in a cost of USD55 to open the position (10,000 X 1.1000=USD11,000 X 0.5% = USD55) and USD55 per 100 point move in the position should it move against the trader.
(units 100,000) 1.0 Lot
(units 10,000) 0.1 Lots
(units 1,000) 0.01 Lots
* The above illustrations are mere fictitious examples and are not to be construed in any way to constitute investment advice.
Margin – Disclaimer
Margin requirements may change from time to time. In order to prevent any confusion, NSFX Ltd., will always, on a best endeavors basis, make its best attempt to inform traders about any projected Margin Requirements Changes via email or phone.
“Calculate hedged margin using larger leg” enables the mode of calculation of margin using the larger position. For example, if there are two hedging positions of one symbol, but with different volumes – sell 1 Standard Lot EURUSD at 1.1268 and buy 2 Standard Lots EURUSD at 1.1260, then the total margin will be equal to the margin of the larger position (2 Standard Lots EURUSD at 1.1260).
An example using 1:100 leverage.
2 Standard Lots x 1.1260 / 100 = €2,252
Should your account be denominated in USD or GBP, the Base Currency Margin, in this case €2,252, requires a currency conversion from € to GBP or USD.