-
CANADA
- Home |
- Forex Trading Help Desk |
- Margin and Leverage
SEE ALSO...
Margin and Leverage
The OANDA fxTrade platform supports margin trading, which means you can enter into positions larger than your actual account balance.
An 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 disadvantage is that you can potentially incur significant losses and your margin capital can be reduced quickly.
Margin closeouts
OANDA requires adequate margin (collateral) in your account at all times to cover all unrealized losses you incur on your positions.
If market rates shift against you and there’s insufficient margin to cover the unrealized loss on your open positions, a margin closeout (also called a margin call) is triggered—and all open positions in your account are closed automatically. Margin closeouts reduce the possibility you will lose more than the amount of margin left in your account.
How are margin closeouts calculated?
As market rates change, they change your Net Asset Value (NAV), which is your account balance plus your unrealized profits/losses. A margin closeout is triggered if your NAV drops to half the margin required by your open trades. All these values are shown in real time on the fxTrade platform in the Account Summary.
For more info on margin closeouts and how to prevent them, read our Margin Rules.
TRADING ON WEEKENDS AND DURING MARKET EVENTS
Rate volatility and changes in global market liquidity can result in large spread increases following news announcements and during times of uncertainty. Market spreads also widen on weekends, when liquidity is lower. At such times, OANDA widens its spreads to reflect market conditions.
If you decide to trade on weekends or around news announcements, you may need to adjust your trading strategy. To prevent unwanted order execution, widen your take profits/stop losses or trailing stops. To avoid margin closeouts, reduce the margin you are using by closing some trades or adding more funds.
Margin and Leverage Examples
The following examples show how much you could trade with $2,000 at 20:1 or 50:1 leverage — and the consequences to your net asset value (NAV) when the market price moves.
Example 1:
$2000
x 20:1 leverage
= $40,000 trade
If trade moves up 100 pips
Unrealized profit is $400
Your NAV = $2400
If trade moves down 100 pips
Unrealized loss is $400
Your NAV = $1600
Example 2:
$2000
x 50:1 leverage
= $100,000 trade
If trade moves up 100 pips
Unrealized profit is $1000
Your NAV = $3000
If trade moves down 100 pips
Unrealized loss is $1000
Your NAV = $1000
The last scenario in Example 2 could be a Margin Closeout!
A net asset value (NAV) of $1000 is half of the margin required for the original trade ($2000). If your total NAV was indeed $2000, this trade at 50:1 leverage would result in a margin closeout. You could not keep the trade open to “ride out” the loss.
To avoid margin closeouts, use lower leverage and never leverage your entire account balance. If your available margin is low, close or partially reduce some trades.