LEVERAGE AND MARGIN

Margin-based trading allows you to leverage the funds in your account to potentially generate larger profits (but also generate larger losses).

UNDERSTANDING MARGIN BASED TRADING

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.

IMPORTANT DEFINITIONS

MARGIN

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

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.

MARGIN REQUIREMENT

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.

MARGIN CLOSEOUT

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.

WATCH THE VIDEO

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.

MARGIN CLOSEOUT EXPLAINED

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.

TO AVOID MARGIN CLOSEOUTS

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. 

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MONITOR YOUR POSITIONS CLOSELY

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NEVER LEVERAGE YOUR ENTIRE ACCOUNT BALANCE

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DEPOSIT ADDITIONAL FUNDS TO YOUR ACCOUNT

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REDUCE THE MARGIN REQUIREMENT BY CLOSING SOME OPEN POSITIONS

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CLOSE INDIVIDUAL POSITIONS

SET A STOP LOSS ORDER

SET A STOP LOSS ORDER

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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.

HOW TO CALCULATE MARGIN

Please Note:

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.

Calculating Margin

The margin needed to open each trade is derived from the leverage limit associated with the asset class that you wish to trade. For example, if you were trading with a particular instrument that had a maximum leverage of 30:1, you would need margin of 3.3 percent calculated from 1/30 x 100 = 3.3 percent. In other words, when trading with leverage of 30:1 you can open a £30 trade for each pound available in your account.

EXAMPLE:

Account currency: GBP
Leverage 30:1
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.

Calculating the Net Asset Value (NAV)

The NAV represents the current value of your account. It is the total of your account balance and all unrealised profits or losses (P/L) associated with your open positions.
Unrealised P/L refers to the profit or loss held on your open positions. This is equal to the profit or loss that would be realised if all of your open positions were immediately closed at prevailing market prices. As a result, this figure continuously fluctuates with price changes. Unrealised P/L is displayed in the ‘Account Summary’ section of the fxTrade user interface.
If you have open positions, then NAV is the sum of your account balance and your account’s unrealised P/L. Open positions will also mean that your account’s NAV will fluctuate with market movement. The NAV is displayed in the ‘Account Summary’ section of the fxTrade user interface.

EXAMPLE:

Account currency: USD
Account balance: 50 USD
In this scenario, you have one open long position of 10,000 units of EUR/USD
The opening price of your position was 1.2581 and the current price for EUR/USD is 1.2570/72.
Accordingly, unrealised P/L = 10,000 x (1.2570 - 1.2581) = 10,000 x (- 0.0011) = -11 USD
NAV = 50 USD (Account Balance) - 11 USD (Unrealised P/L) = 39 USD

Calculating Available Funds

Your available funds are the sum of your account’s NAV that is not being used as margin requirement to maintain open positions. These funds are free to be used to open another position, transfer to another sub-account or withdraw. This figure is detailed in the ‘Margin Available’ field on the Account Summary section of the fxTrade user interface.

EXAMPLE:

Account balance: 550 GBP
Unrealised P/L: -45 GBP
With the above in mind, your account’s NAV is 550 GBP – 45 GBP = 505 GBP.
In this example, you have two open positions with a cumulative margin requirement of 300 GBP.
Therefore, your margin available = 505 GBP (NAV) – 300 GBP (margin requirement) = 205 GBP.
In this scenario, you would be able to open a new position if the margin needed to open that position was less than 205 GBP.

Calculating When a Margin Closeout Will Occur

If your Margin Closeout Value* falls to less than half of your margin required, all open positions will be automatically closed using the current fxTrade 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 fxTrade 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.

*The Margin Closeout Value is equal to your balance plus your unrealized P/L from all open positions, converted into the currency of the account, all calculated using the current midpoint rates. This value is approximately equal to your NAV, but with slight deviations due to being calculated based on midpoint rates rather than bid/ask rates.

EXAMPLE:

Account currency: GBP
In this example, you have one open long position in 10,000 units of GBP/ZAR. You are trading this instrument with leverage of 20:1.
With the above in mind, the margin needed to open your position was five percent of 10,000 GBP = 500 GBP. Therefore, the margin required to maintain your open position is 0.5(500 GBP) = 250 GBP.
This position will close therefore when your account’s NAV falls to 250 GBP or below.

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† Disclaimer:

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.

Your capital is at risk. Losses can exceed investment. Leverage trading is high risk and not for everyone.