All foreign exchange accounts operate with margin. Having a clear understanding of what margin requirements are is essential when engaging in foreign exchange market transactions. The margin itself represents the amount of money needed by the broker from a trader, upfront, in order to secure, and guarantee a leveraged position on behalf of the trader, in the market.
The actual amount required is calculated by the amount of leverage the individual trader intends to trade with. The requirement is a minor % compared to the actual dollar value of contract it represents in the open market. Margin is the collateral put up that limits the brokerage’s exposure and allows the individual to benefit greatly from leveraged positions. There are risks, as with all trading, but with margin in place these risks are minimized. If the trade closes in profit, the margin is returned to the trader along with profit. If the position closes in a loss, the trader forfeits the margin to the broker.
As a result, in order to open a new position the trader must maintain the Minimum Margin Requirements at all times, if not the risk to both parties would be unmanageable. FUBON offers leverage of both 1:100, and 1:200 which translates to margin requirements of 1.0% and 0.5% respectively.
If a Trader’s Equity should, at any time, equal or fall below 20% of the Used Margin for a Trader’s Account in total. FUBON will liquidate any part of or all Open Positions in a Customer’s Account. Closure of positions will be done on the basis of best execution prices available to FUBON at that time. FUBON at its best effort will attempt to contact the trader with an Equity Notification if an individual’s Equity should, at any time, equal or fall below 20% of the Used Margin.
Beyond basic explanations, it is important to understand how margin operates in a regular trading environment. The clearest way to understand this is by going through the calculations involved. Margin requirement is calculated by the leverage of the instrument (0.5% or 1:200, 1.0% or 1:100) and the USD value of the position.
Now, let’s take a 10,000 EUR/USD (“Mini-Lot” or 0.1 Lots) position bought at price of 1.2500. The USD value of the position will be: 10,000 X 1.2500= 12,500 USD. With a margin requirement of 1.0% (1:100 leverage) the result will be 125 USD required to keep the position open.
Let’s take a 10,000 EUR/USD(“Mini-Lot” or 0.1 Lots) position bought at a price of 1.2500. The USD value of the position will be: 10,000 X 1.2500 = 12,500 USD. With a margin requirement of 0.5% (1:200 leverage) the result will be 62.5 USD required to keep the position open.
Margin requirements may change from time to time. In order to prevent any confusion, FUBON will always make its best effort, and will inform traders about any projected changes on Margin Requirements via email or phone at least a week in advance of Margin Requirement Changes. FUBON has the right to liquidate any or all Open Positions whenever the Minimum Margin Requirement is not maintained.