Margin - How is it calculated? | Forex Factory

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Margin - How is it calculated?

  • #1
  • First Post: Nov 18, 2010 6:24pm Nov 18, 2010 6:24pm
Okay, suppose I open 1 lot long when the exchange rate between the Euro and the Dollar is 1.00....

At 2%, leverage the margin for 1 lot is $2000.

Easy enough.

But as the price goes to $1.10, the margin requirement is $2,200 (1.10 x 2000)

My question is, is the margin calculated off of the exchange rate's bid or ask?

My gut says it is the higher of the two, the ask.
  • #2
  • Nov 18, 2010 7:02pm Nov 18, 2010 7:02pm
If you already in the position at 1.0 rate I guess there is no need for margin as
your position is in profit
But if you are entering at 1.10 then yes of course the margin would be 2,200
  • #3
  • Nov 18, 2010 7:06pm Nov 18, 2010 7:06pm
Doesn't answer the question.

Is it calculated on bid or ask?


The reason it's important is, if you take a short, you will want to include the increasing margin along with your stop loss calculation, assuming you take highly leveraged trades.
  • #4
  • Edited 11:15pm Nov 18, 2010 10:47pm | Edited 11:15pm
It depends which brker your using. Most retail shops will base it off the immediate closing value of your position. If your long, your position value will be determined by the current bid. The ask if you were short. All of which assumes that your trading E/U in a USD denominated account. For all USD/XXX pairs, the bid ask is irrelivant because you defined the trade value as a fixed sum. E/U in a Euro denominated account would also render the bid ask irrelivant.

Once you get into the crosses... good luck.
  • #5
  • Nov 18, 2010 11:09pm Nov 18, 2010 11:09pm
Maybe you are just smarter than me in this, but the answer is somewhat cryptic. The "trade value" is not static: it changes with the exchange rate. So as price rises on a short position, the margin requirement (on a USD based account, xxxUSD pair) will increase.

Appreciate your effort in answering my question. BLUF: Generally, a short will have the ask used in the said calculation... but best to ask your broker.
  • #6
  • Nov 18, 2010 11:17pm Nov 18, 2010 11:17pm
Quoting tdion
Maybe you are just smarter than me in this, but the answer is somewhat cryptic. The "trade value" is not static: it changes with the exchange rate. So as price rises on a short position, the margin requirement (on a USD based account, xxxUSD pair) will increase.

Appreciate your effort in answering my question. BLUF: Generally, a short will have the ask used in the said calculation... but best to ask your broker.
Damn it your right... I had it that way and changed it because it didnt seem right. Its fixed...

Yes... you have it correct. The margin on a short will increase as price rises.
  • #7
  • Nov 18, 2010 11:24pm Nov 18, 2010 11:24pm
Yes.... and on the ask or the bid?

  • #8
  • Nov 18, 2010 11:36pm Nov 18, 2010 11:36pm
Quoting tdion
Yes.... and on the ask or the bid?

Damn confusing subject I tell you. I had to plot it out on the whiteboard to be sure.

It would be calculated on the ask for a short.
  • #9
  • Nov 18, 2010 11:41pm Nov 18, 2010 11:41pm
To any newbs reading this thread:

margin requirements increase as price rises on a long too for all USD based accounts on xxxUSD pairs...
  • #10
  • Nov 18, 2010 11:47pm Nov 18, 2010 11:47pm
Thank you DS
  • #11
  • Nov 18, 2010 11:56pm Nov 18, 2010 11:56pm
Quoting tdion
Thank you DS
Any time brother.

Luck be with you.
  • #12
  • Nov 19, 2010 8:24am Nov 19, 2010 8:24am
Quoting Darkstar
Damn confusing subject I tell you. I had to plot it out on the whiteboard to be sure.

It would be calculated on the ask for a short.
Should be ask because you'll have to close your position on the ask (assuming that would be a market order)
  • #13
  • Edited 8:52am Nov 19, 2010 8:37am | Edited 8:52am
FWIW, my understanding is that the formula to calculate margin required (per 1 lot) for an account in US Dollars is:

MR = UsdConv * BrokerLotSize / BrokerLeverage

The margin used for any trade is calculated using the trade open price.

Inserted Code
 
double calcMarginRequired( string strPair )
{
   double dblConv = 1.0;
   double dblLeverage = AccountLeverage();
   double dblBrokerLotSize = MarketInfo( strPair, MODE_LOTSIZE );
   string strCcy1 = StringSubstr( strPair, 0, 3 );
 
   if ( strCcy1 == "CAD" || strCcy1 == "CHF" || strCcy1 == "JPY" )
   {     
      dblConv = 1.0 / MarketInfo( "USD" + strCcy1, MODE_BID );      
   }  
   else if ( strCcy1 == "AUD" || strCcy1 == "EUR" || strCcy1 == "GBP" || strCcy1 == "NZD" )   
   {     
      dblConv = MarketInfo( strCcy1 + "USD", MODE_BID ); 
   } 
   return( NormalizeDouble( dblConv * dblBrokerLotSize / dblLeverage, 2 ) );
}
  • #14
  • Nov 19, 2010 1:41pm Nov 19, 2010 1:41pm
Dear everyone, I need some insight from experts. I funded an account with 10,000 usd, I lost 97% of the money (obviously my fault). I had an an equity left of around 270 Usd and had 4 positions open 2 buy (0,50 + 0,18) and 2 sell (0,50 and 0,18), therefore no margin requirement. One day I wake up and find all my positions closed with a balance of -96 Usd.
I have tried helplessly to get explaination from the broker who wrote that I got a margin call and the order was closed.
How can I get a margin call when all positions balance one another? I also want to stress that there was no particular market move when that happened.
Have I missed something? Your really appreciate some of your insight.
  • #15
  • Edited 2:45pm Nov 19, 2010 2:09pm | Edited 2:45pm
(edited: I may be incorrect, anyone care to elaborate?)

Individual positions require the maintenance margin, even though they are offsetting.

In your mind, you are hedged.... but you still must have the money to place the trades.

I imagine you were using a non-US broker and had a long and short of the same currency pair? With extreme volatility at some time, and a large spread you could exceed your margin. With a large one directional move over time (i.e. - EUR/USD climbing 1100 pips in Oct), the margin required increases/decreases for trades also.

If you care to share specifics, perhaps we can help with the math...
currency pair, exact prices, account balance, leverage for account (50:1, 100:1, ...400:1)

I edited my above post, because of an example I read at FXCM broker, whereas after Oct. 15, 2010 they changed their Hedged Position Margin requirements. These policies are likely broker specific.
http://forexforums.dailyfx.com/forex...15-2010-a.html
  • #16
  • Nov 20, 2010 10:41am Nov 20, 2010 10:41am
Thank you Intu for the help, still the things are not clear at all. We are talking of the currency pair EUR/USD. I want to make clear that this "incident" happened when I was not logged in and I realized it 4 hours after when I logged in.

Please see attachment. I just realized that the buy positions have been closed at a different price of the sell positions. This explains why my equity moved from +250 to - 96 or so. I think something went wrong in the system. As you see I had only a take profit (around 1,28 on 1 position) and the price at 9.00 GMT (10.00 ITALY TIME) of the 22nd October was well far away around 1,3934. I already experienced some erratic movements in trading where unexisting prices appeared on the graph (only of one broker). Could this be a technical fault? This could explain why the broker is not giving me a clear history of what happened. I think it's correct before a name him that I evaluate other possibilities.



Quoting tradtar
Dear everyone, I need some insight from experts. I funded an account with 10,000 usd, I lost 97% of the money (obviously my fault). I had an an equity left of around 270 Usd and had 4 positions open 2 buy (0,50 + 0,18) and 2 sell (0,50 and 0,18), therefore no margin requirement. One day I wake up and find all my positions closed with a balance of -96 Usd.
I have tried helplessly to get explaination from the broker who wrote that I got a margin call and the order was closed.
How can I get a margin call when all positions balance one another? I also...
Attached Image (click to enlarge)
Click to Enlarge Name: 22oct2010.jpg Size: 61 KB
  • #17
  • Last Post: Nov 20, 2010 12:17pm Nov 20, 2010 12:17pm
Looking at your statement of trades, I can't figure out what happened.
I did learn that hedged positions have no margin requirement at GoMarkets.

Quoting GoMarkets
Hi, if you want to contact me directly I will be able to look at your account and explain your exact margining... when you have a hedged position, there is zero margin requirement at GO Markets because it is neutral. If you think that your account doesn't look right, just give us a buzz and we will help you out.
That was from this post-
http://www.forexfactory.com/showpost...postcount=1443

I suggest you contact them through private message and give him your details or call the company as he suggested.

Sorry, I wish I could be more help. Once I learned of the zero margin requirement, most of my ideas were wrong.

You are correct though, I see a +50 pip difference in where they executed your sell and buy of the .50 lot EUR/USD on 10/22/2010 at 10:00. That is a glaring problem.
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