My question deals with margin in the Forex market, and is as follows:
How is margin requirement calculated for Forex?
Can you have a fixed dollar amount for the margin for one contract (like the futures market)?
Reason for question is because I am reading about fixed fractional and fixed ratio money management strategies and the author refers to contract positioning in futures trading./
any help would be great
devilzadvocate
Joined: 06 Jul 2008
Posts: 4
Posted:
Sun Jul 06, 2008 4:10 pm
Calculating the usable margin (Usbl Mr) that will be available after placing a trade can be done by using some simple math. If an account has $1000 usable margin available and the trader has a 1% margin requirement and wishes to place a trade for 30K, the amount that is deposited into the used margin field after placing the trade can be figured by multiplying the trade size by the margin requirement ($30,000 x 1% = $300). This leaves the trader with $700 of gross usable margin ($1000 - $300 = $700). The next step is to subtract the spread from the gross usable margin to get the net usable margin. The EUR/USD is worth $1 per pip for every 10K contract. So a 30K contract would equal $3 per pip. If there is a 3pip spread then a 30K contract would cost $9 ($3 x 3pip spread = $9). Now take the original $700 gross usable margin and subtract the spread and there is $691 net usable margin ($700 - $9 = $691). Now to figure how many pips the market can move against the position to bring the net usable marigin to zero, take the net usable margin and divide it by the cost per pip ($691 / $3 = 230pips)
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