Margin Calculations

Margin is the amount of cash that must be reserved on a trading account before the trader can open a position on it. Under certain conditions initial margin, as defined above, may be different from maintenance margin - the amount of money reserved on the account to keep the position. The system supports three algorithms for margin calculation:

·        Flat rate – margin requirements for a position on a certain currency are proportional to the number of lots on the position.
The margin requirement per-lot is the only parameter for this algorithm.

·        Schedule – margin requirements for a position on a certain currency are proportional to the number of lots on the position and the coefficient depends on the time of day. The system supports two different coefficients set for two different intervals of time.
The algorithm depends on four parameters: two time-settings and two per-lot margin amounts.

·        Levels – margin requirements are calculated as the position quantity multiplied by a coefficient that depends on the absolute quantity of the position. There can be an arbitrary number of levels. The number of parameters for this algorithm is the 2 * N + 1, where N is the number of levels: level maximum and the coefficient for each level, plus a coefficient for positions larger than the largest level maximum.

Only one of the algorithms can be applied to positions in the same instrument on a single account at the same moment of time.

For instance

 

1. Fixed (flat) Margin Requirement

Same Margin Requirement throughout the day

(Example: Margin Requirement is set at $1,000 per lot. Then any number of ‘lots’ opened or kept open any time a day would require same margin of $1,000 per lot)Different fixed Margin Requirements for Intraday and Overnight trading.

(Example: Margin Requirement is set at $1,000 per lot in day trading; $2,000 in the Night trading. Daytime trading closes at 3 p.m. and reopens in 5 hours - at 8 p.m. Then any number of ‘lots’ opened or kept open within the ‘trading day’ (any time between 8 p.m. and 3 p.m. next day) would require same margin of $1,000 per lot. And any number of ‘lots’ opened or kept open within the ‘overnight period’ (any time between 3 p.m. and 8 p.m.) would require same margin of $2,000 per lot)

 

2. Margin Requirement by Levels, whereas Margin Requirement per every new trading ‘lot’ depends on number of ‘lots’, already opened on client’s account.Two levels of trader’s ‘market exposure’ (in terms of number of open ‘lots’) can be set in the system.And, therefore, three different amounts of Margin Requirements can apply to newly opened ‘lots’.(Example: Level 1 is set at 5; Level 2 is set at 10.

Margin Requirement for the 1st – 5th ‘lot’ is set to be $500 per lotMargin Requirement for the 6th– 10th ‘lot’ is set to be $1,000 per lotMargin Requirement for any number of ‘lots’ over 10 is set to be $2,000 per lotIf client is trying to open 5 lots, his Margin Requirement is $2,500, calculated as

5 x 500=2,500

If client is trying to open 2 more lots, his Margin Requirement is $4,500, calculated as

(5 x 500) + (2 x 1,000)=4,500

If client is trying to have altogether 12 open ‘lots’ in the market, his Margin Requirement is $11,500, calculated as (5 x 500) + (5 x 1,000) + (2 x 2,000)=11,500

System Administrator decides which type of Margin Requirement to choose for his system, and ActForex does the system level setting according to System Administrator’s request.