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

A good faith deposit or performance bond. In leveraged trading, the margin amount is held in deposit 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 limit the size of the positions you can open.

LEVERAGE

The reciprocal of Margin. For example, 2% margin is the same as 50:1 leverage. The maximum leverage allowed is determined by the regulators in each geographic region. The individual trader and OANDA may choose to limit leverage to lower levels than allowed by the regulators.

MARGIN REQUIREMENT

The margin required for a particular instrument in your account is the greater of the Regulatory Margin Requirement set by your division and the margin you chose for your account. For example, if the regulator requires 2% (50:1 leverage) on EUR/GBP, and you selected 5% margin (20:1) leverage for your account, your margin requirement for the instrument will be greater of the two, which is 5%.

NET ASSET VALUE

NAV refers to the value of all assets, minus all liabilities. When you have open positions, your NAV is calculated as the total assets in your account, plus the theoretical value of your open positions. This value is obtained by calculating the value of your positions if they were closed at the current market rat

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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 CLOSE-OUT 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.

In a fast moving market, there may be little time between warnings, or there may not be sufficient time to warn you at all. Be mindful of the "Margin Closeout Percent" field in the Account Summary of the  platform user interface. The closer the margin closeout percent is to 100%, the closer you are to a margin closeout.

HOW TO AVOID MARGIN CLOSE-OUTS

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 the status of your account continuously, especially before markets close for the weekend and during times of high volatility.

Speed of Execution - Illustrated rocket ship icon.

USE A LOWER LEVERAGE

When you impose a higher margin on yourself, you will be aware of a potential margin closeout sooner, and be able to increase leverage if necessary.

Speed of Execution - Illustrated rocket ship icon.

ADD FUNDS TO YOUR ACCOUNT

Add additional funds into the account or transfer funds from another sub-account. Note that it takes time to add new funds and it may arrive too late.

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REDUCE POSITION SIZE

With OANDA you can incrementally reduce the size of your positions as you get closer to a margin closeout. 

Stop Loss tool with wrench

CLOSE INDIVIDUAL POSITIONS

Choose the orders you wish to close to reduce the amount of margin required.

SET A STOP LOSS ORDER

SET A STOP LOSS ORDER

Specify a stop-loss or trailing-stop order for each open trade to limit downside risk.

WATCH THE VIDEO

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.

STEPS TO CALCULATE AVAILABLE MARGIN

Follow the steps below to calculate your available margin:

Calculate the Margin Used

The Margin Used represents how much of your Net Asset Value is currently held as margin against your open positions. The Margin Used is equal to the position size multiplied by the Margin Requirement, summed up over all open positions.

EXAMPLE: You have a USD account with maximum leverage set to 20:1 and a long 10,000 EUR/GBP open position. The current rate for EUR/USD is 1.1320/1.1321, therefore the current midpoint rate of EUR/USD is 1.13205.

For the leverage calculation, the lower of the maximum regulated leverage and your selected leverage is used. The regulator allows 50:1 leverage on EUR/GBP, but because you have selected a 20:1 leverage for your account, a leverage of 20:1 (or 5% margin requirement) is used.
Your margin used is position size x Margin Requirement = 10,000 EUR x 5% = 500 EUR.
The Margin Used in your account currency = 500 x 1.13205 = 566.025 USD.

Calculate the Margin Available

The Margin Available value is the greater of 0 and your Net Asset Value minus your Margin Used.

Calculate the Margin Closeout Value

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.

EXAMPLE: You have a USD account with balance of 1,000 USD and a long 10,000 EUR/USD open position opened at a rate of 1.1200. The current rate of EUR/USD is 1.13200/1.13210, therefore the current midpoint rate of EUR/USD is 1.13205.
Your unrealized P/L calculated by the current midpoint rate is (current midpoint rate – open rate) x position size = (1.13205 – 1.1200) x 10,000 = 120.50 USD.
Your Margin Closeout Value is 1,000 + 120.50 = 1,120.50 USD.

FAQ: What is the Initial Margin?

The Initial Margin for a trade is equal to the trade size multiplied by the Margin Requirement. This amount is then converted into the currency of the account. When opening a new trade, your Initial Margin must be less than or equal to your Margin Available. If your Initial Margin is greater than your Margin Available, you cannot open the trade.

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† Disclaimer:

Execution speed numbers are based on the median round trip latency measurements from receipt to response for all Market Order and Trade Close requests executed between August 1st and November 30th 2017 on the OANDA V20 execution platform, excepting MT4 initiated orders.

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.