Understanding margin and leverage
Discover how you use margin and leverage with an OANDA account, and take a position on 68 forex pairs 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, 5% margin is the same as 20:1 leverage.
Let’s say you have a USD account with a 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 (the current midpoint rate of EUR/USD is therefore 1.13205).
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.
The maximum leverage allowed per trade in the US is determined by the National Futures Association (NFA) - the regulatory authority in the US.
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 meaning 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. Always remember where there is potential for profit, there is also potential to incur significant losses in your account. It is a good practice to utilize stop loss orders to limit potential losses when utilizing leverage. Please note that stop loss orders are not guaranteed, and gaps in market pricing may cause your stop loss orders to be filled at a less advantageous price. Our help center can give more details on stop losses and other orders.
If your account falls below the required maintenance threshold (50% of the margin needed to open a trade), you’ll be required to add funds to maintain your positions or close open positions to raise your account balance above the minimum margin requirement. If you fail to do so, a margin closeout will be initiated - this is when all of your open positions are closed
You must maintain a sufficient margin in your account to support your open positions. When accounts are under-margined, there will be an automatically initiated 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.
- 50% MCO percentage: Your account is "fully margined," meaning your Equity (NAV) has fallen to equal your Margin Used. This triggers a Margin Call warning.
- 100% MCO percentage: Your Equity has fallen to half (50%) of the required Margin Used. At this point, OANDA will automatically initiate a Margin close-out to prevent further losses.
We use a Tiered Margin structure. This means that the margin requirement for a single instrument is not flat; as your total Net Open Position (NOP) increases across certain thresholds, the incremental margin rate rises.
Here’s an example:
All values represent Net Open Position in USD equivalent.
| Currency pair | NFA grouping | Margin requirement (%) | Effective leverage | Total margin (Per $100k position) |
|---|---|---|---|---|
|
EUR/USD |
Major |
2.0% |
50:1 |
$2,000 |
|
USD/CAD |
Major |
2.0% |
50:1 |
$2,000 |
|
AUD/USD |
Major |
3.0% |
33.3:1 |
$3,000 |
|
USD/CHF |
Major |
3.0% |
33.3:1 |
$3,000 |
|
GBP/USD |
Major |
5.0% |
20:1 |
$5,000 |
|
USD/JPY |
Major |
5.0% |
20:1 |
$5,000 |
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