HOW MARGINS WORK
*Margin policies will vary by FCM/Dealer, and the information on this webpage is for informative purposes only. Please check with your respective FCM/Dealer for 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, depending on the FCM/Dealer, it may be acceptable if the client's forex trading account balance drops below the initial margin requirement. However, the forex trading account balance must remain above any "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 and, at the sole discretion of the FCM/Dealer, some or all of the client's open positions may be closed. 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 or when significant events occur that can affect global currency markets, to account for increased volatility in currency rates. Margin levels and policies are set by each respective FCM/Dealer's credit committee and are outlined in the FCM/Dealer's account opening documentation. VAM FOREX does not have any control over customer margin levels.
*Please note that margin calculations may vary for
direct rates, indirect rates and cross-rates. Further, margin rates will vary by
currency pair.
Please click on the appropriate link for more information:
*Leveraged trading can lead to potentially large losses as well as gains.
Risk Disclosure
VAM FOREX clients can utilize leverage of up to 400:1 (or .25%) in the forex spot market. This simply means
that an investor can leverage a USD equivalent $100,000 spot forex contract with an
initial margin requirement of $250 USD.
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
requirements and policies will vary by FCM/Dealer.
Forex spot margins are calculated as
follows:
contract size X
margin rate 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
(assuming 1% margin rate):
100,000 X .01 X 1.1705 = $1,170.50 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 and are
generally calculated as follows:
contract size X option delta X spot
margin rate X spot rate = initial 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 (assuming
1% margin rate for the underlying spot contract):
100,000 X .5 X .01 X 1.1705 =
$585.25 initial margin requirement
Forex option deltas are usually listed along
with the
quotes on the forex options trading platforms.
NOTE: depending on the FCM/Dealer, you may be required to post
delta-based 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).
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 required margin level. 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.
