Account currency: GBP
In this scenario, you wish to open a long position of 5,000 units of GBP/USD. As leverage is 30:1, the margin needed to open this position is 3.3 percent of 5,000 = 166.67 GBP.
Margin-based trading allows you to leverage the funds in your account to potentially generate larger profits (but also generate larger losses).
OANDA supports marging trading, meaning you can enter into positions larger than your account balance. The downside of this is that you have an equal opportunity to incur significant losses in your account. Therefore, it is best practice to utilize stop loss orders to limit potential losses when utilizing leverage. Remember, stop loss orders are not guaranteed since gaps in market pricing may still cause your orders to be filled at a less advantageous price.
OANDA takes a form of security (or deposit) against any losses that you may incur when you trade, this collateral is typically referred to as margin. The margin needed to open each trade is derived from the leverage limit associated with the asset class that you wish to trade.
Leverage allows you to enter into positions larger than your account balance and trade whilst only depositing a fraction of the value of the position that you wish to open. For instance, if you used leverage of 10:1 and had a balance of £100, you could enter into a position with the value of £1,000. The maximum leverage allowed is determined by the regulators and may differ depending upon the instrument.
In order to keep a position open, you are required to maintain a minimum amount of money in your account, this is known as the margin requirement. On OANDA fxTrade, the margin requirement is 50% of the margin needed to open a trade.
You are required to maintain sufficient funds on your account to cover the margin requirement. If the funds on your account falls below the margin requirement then your positons will be closed, this is known as margin closeout.
Introduction to Margin and Leverage
Leveraged trading carries a high degree of risk. When trading on margin, both profits and losses can be magnified. Carefully consider your financial objectives, level of experience and appetite for such risk prior to entering the markets.
When the margin closeout value declines to half, or less than half, of the margin used, all tradable open positions in the account will automatically close using the current platform rates at the time of closing.
If trading is unavailable for certain open positions at the time of the margin closeout, those positions will remain open and the OANDA platform will continue to monitor your margin requirements. When the markets reopen for the remaining open positions, another margin closeout may occur if your account remains under-margined.
Adverse market movement and/or excessive trading can result in insufficient funds being held on your account to cover the margin requirement to support your open positions, and consequently margin closeout of these open positions.
Remember you are responsible for monitoring your account to prevent margin closeouts. You must maintain sufficient margin in your account to support your open positions.
How to Avoid a Margin Closeout?
Margin closeouts can help prevent traders from the possibility of a loss that may exceed the total amount of money in their trading account, but in fast markets your losses can exceed your capital.
In these examples margin is displayed in your account currency. If the instrument you are trading has a different base currency to your account currency, then margin will be calculated in the base currency and then converted to your account currency at the prevailing exchange rate.
There are numerous factors that can affect the rate at which your closeout is executed, including spread, price volatility and market liquidity. While a margin closeout is a final measure to help preserve your remaining capital, it is not a substitution for using stop losses on trades. OANDA encourages the use of stop losses as part of a risk management strategy.
If you leave positions open over the weekend or when markets are ‘halted’, you cannot close them until the markets reopen. Prices may change significantly or ‘gap’ when trading resumes. If prices move against you, a margin closeout may be triggered when trading resumes.
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A trading strategy can offer benefits such as consistency of positive outcomes, and error minimization. An optimal trading strategy reflects the trader’s objective and personal approach.
Fundamental traders watch interest rates, employment reports, and other economic indicators trying to forecast market trends.
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Leveraged trading involves high risk since losses can exceed the original investment. A capital management plan is vital to the success and survival of traders with all levels of experience.
Learn risk management concepts to preserve your capital and minimize your risk exposure. Seek to understand how leveraged trading can generate larger profits or larger losses and how multiple open trades can increase your risk of an automatic margin closeout.
This page is for general information purposes only: examples are not investment advice or an inducement to trade. Past history is not an indication of future performance.
Execution speed and numbers are based on the median round trip latency from receipt to response for all Market Order and Trade Close requests executed between January 1st and May 1st 2019 on the OANDA execution platform.
Contracts for Difference (CFDs) or Precious Metals are NOT available to residents of the United States.
MT4 hedging capabilities are NOT available to residents of the United States.
The Commodity Futures Trading Commission (CFTC) limits leverage available to retail forex traders in the United States to 50:1 on major currency pairs and 20:1 for all others. OANDA Asia Pacific offers maximum leverage of 50:1 on FX products and limits to leverage offered on CFDs apply. Maximum leverage for OANDA Canada clients is determined by IIROC and is subject to change. For more information refer to our regulatory and financial compliance section.