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Margin And Leverage

The Rules And Requirements

At fxdreamtrade Forex Trading, you can select the level of leverage that suits you. Margin and leverage levels are dynamic and react to the level of equity in your account, holidays, weekends and economic news, so it’s important to understand how they work. Find the answers to the most frequently asked margin and leverage questions in our FAQs section at the bottom of the page.

What is margin?

Trading on margin is used to increase an investor’s buying power. An investor is required to put up only a fraction of the funds they would normally need in order to open a much larger position. This means rather than paying the full value of the position, you only need to pay a percentage of the position, which is called ‘initial margin’.

Trading on margin can be beneficial, but also high-risk given the fact you can potentially lose your entire investment, if you are a Retail Client. Professional clients can lose more than their deposits and they may be required to deposit additional funds to cover their losses. Simply put, margin is the amount of money required to open a position, while leverage is the multiple of exposure to account equity. The amount of margin depends on the margin rate requirements. This differs between each trading instrument, depending on market volatility and liquidity in the underlying market.

Market volatility is the potential percentage moves of a market in a given market. Volatility is also often intricately linked to liquidity. For example, the major forex markets (US Dollar, British Pound, Euro, Japanese Yen) trade trillions per day and are considered very liquid.

Leverage ratio

The leverage ratio and margin requirements differ from broker to broker. The amounts typically offered are 100:1, 200:1 and 50:1. The leverage offered will also depend on the trade size of the position. A minimum margin requirement of 0.5% is the same as 200:1 leverage. A leverage ratio of 100:1 would be 1%.

NOTE: If you are new to leveraged trading, it is important that you understand the concept of margin and leverage before trading. It is also advisable to practice trading in a risk-free environment with a fxdreamtrade Forex Trading demo account.

Initial Margin & Margin Requirement

Initial margin is the initial amount put up in order to open the position. It is often also referred to as an “initial deposit”. The initial margin requirements will be different for each market and differ depending on the asset type, trading instrument and intended trade size of the position.

For example: Trader ‘B’ places a CFD trade worth £2,000, which has an initial margin rate of 0.5%. This means Trader ‘B’ is only required to deposit 0.5% of the total value of the position, which in this case would be £10.


What is a margin call?

When you are on margin call you are not allowed to take on any more risk, and your account is at risk of stop-out.

The point you are on margin call is when your equity (balance + unrealised profit & loss) is equal to your margin requirement. Your stop-out level is when your equity is equal to half your required margin, and your biggest losing position will be closed out forcibly. If a trader has open losing positions and does do not have enough equity to cover those positions, their account would be at risk of stop-out. This essentially means that any or all of their open positions would be automatically closed by the trading platform if the balance dropped below the margin stop-out level. The 90% margin close out rule is applied on a per account basis.

For example, Trader ‘C’ has six open trades, each requiring £200 worth of position margin, and the current close-out percentage level on that trading account is 90%. This would make the total position margin requirement £1,200. If the account of Trader ‘C’ then dropped below 90% of this total margin requirement (which in this example is £1,080), some or all of those trades may be automatically closed out, potentially at a loss to Trader ‘C’.

What to do if you are on margin call?

There are two options open to a trader if they receive a margin call. The first would be to close the position there and then. The other would be to deposit additional funds to increase your equity above the margin requirement and support any further losses. If possible, you can also reduce the size of other positions to free up some further equity in the account.



Equity, USDMaximum Available LeverageFixed Margin Requirement, %
1:20001:10001:200
0 – 9991:Unlimited0.050.10.5

Fixed Margin Requirement, %

1:2000 – 0.05

1:1000 – 0.1

1:200 – 0.5

1 000 – 2 9991:20000.050.10.5

Fixed Margin Requirement, %

1:2000 – 0.05

1:1000 – 0.1

1:200 – 0.5

3 000 – 9 9991:10000.050.10.5

Fixed Margin Requirement, %

1:2000 – 0.05

1:1000 – 0.1

1:200 – 0.5

10 000 – 19 9991:6000.050.10.5

Fixed Margin Requirement, %

1:2000 – 0.05

1:1000 – 0.1

1:200 – 0.5

20 000 – 49 9991:4000.050.10.5

Fixed Margin Requirement, %

1:2000 – 0.05

1:1000 – 0.1

1:200 – 0.5

50 000 – 199 9991:2000.050.10.5

Fixed Margin Requirement, %

1:2000 – 0.05

1:1000 – 0.1

1:200 – 0.5

200 000 or more1:1000.050.10.5

Fixed Margin Requirement, %

1:2000 – 0.05

1:1000 – 0.1

1:200 – 0.5

Economic News, Weekends And Holidays

In order to minimize your exposure to risk, margin requirements and leverage may change before the release of key economic news announcements, important holidays, and over the weekend.

NewsWeekendsHolidays
News

From 15 minutes before the the publication of high-level economic news until 5 minutes after, margin requirements for new positions opened on affected instruments are calculated with a maximum leverage of 1:200.

Weekends

Margin requirements for the opening of new positions will be calculated with a maximum leverage of 1:200 from Friday at 19:00 GMT (three hours before the forex market closes) to Sunday at 23:00 GMT (two hours after the market opens).

Holidays

Along with weekends, a number of important holidays may also be subject to increased margin requirements. Before any adjustments to your leverage are made, we will publish an update in the Exness News section.

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