Understanding margin and leverage
Take a position on hundreds of CFD instruments by depositing just a fraction of the full value of your trade.
Margin
Margin trading allows you to leverage the funds in your account to potentially generate larger profits by depositing just a fraction of the full value of your trade. This means that you can enter into positions larger than your account balance. The downside, however, is that you can also incur significant losses if the trade moves against you.
Margin is a good faith deposit or performance bond. In leveraged trading, the margin amount is held in deposit by us, your platform provider, while the trade is open. Although there is no minimum margin deposit required to open a trading account with OANDA, the margin available in your account will determine the size of the positions you can open.
Remember, when trading on margin, both profit and loss can be magnified. Carefully consider your financial objectives, level of experience and appetite for risk before you begin trading on leverage.
Leverage
Leverage is the reciprocal of margin. For example, 2% margin is the same as 50:1 leverage.
Let’s say you have a CAD account and a long 10,000 USD/CAD open position. The current rate for USD/CAD is 1.3500/1.35018 (the current midpoint rate of USD/CAD is therefore 1.135009).
Your margin used is position size x margin requirement = 10,000 USD x 2% = 200 USD.
The margin used in your account currency = 200 x 1.135009 = 270.01 CAD.
The maximum leverage for an instrument in Canada is determined by the Canadian Investment Regulatory Organization (CIRO) – the regulatory authority in Canada.
Whilst OANDA offers different instruments that have different margin requirements, you have full control of the trade size you would like to open and can manage your risk by adjusting your trade size accordingly. The larger the amount of your available funds that you use in a trade, the greater the risk. Experienced traders would not risk all of their funds on any single trade.
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Frequently asked questions
The OANDA Trade platform supports margin trading, which means you can enter into positions larger than your account balance. One advantage of margin-based trading is that you can leverage the funds in your account and potentially generate large profits relative to the amount invested. The downside is that you have an equal opportunity to incur significant losses in your account. It is a good practice to utilize stop loss orders to limit potential losses when utilizing leverage.
Stop loss orders are not guaranteed; gaps in market pricing may cause your stop loss orders to be filled at a less advantageous price. The order types page provides more detail on stop losses and other orders.
You must maintain sufficient margin in your account to support your open positions. When accounts are under-margined, the OANDA Trade platform will automatically initiate a margin closeout, whereby all tradable open positions in the account are automatically closed using our current rates at the time of closing in accordance with OANDA’s margin rules.
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