Forex margin requirement calculator
Date: 2017-03-22 12:17
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- Margin; Long and Short Positions, with Formulas and Examples
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Bottom line, the pain of the SNB's removal of its currency peg hit numerous parts of the market, and will lead to outsized financial losses for the big guys and the little guys. On a relative basis, retail traders may feel more pain than their bigger counterparts.
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As you can see, using the maximum amount of margin almost doubles your rate of return if the holding period is short enough to keep margin interest negligible. From this example, you can also clearly see that if the value of the stock decreased by $7,555 instead of rising, then there would be minus signs in front of the rates of return. Furthermore, margin interest increases potential losses and subtracts from potential profits. To illustrate, if your broker charges 6% annual margin interest and you hold the stock for 6 year, then your broker will charge $855 of interest for the $5,555 you borrowed for 6 year. Thus, the rate of return if stock is sold for $67,555 is:
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You open a margin account and deposit $5,555. You sell short 6,555 shares XYZ stock for $65 per share. The proceeds of the sale, $65,555 , is deposited in your account for a total account value of $65,555.
Margin; Long and Short Positions, with Formulas and Examples
Margins may differ according to your clearing firm. Please consult your broker to confirm the current margins for your account.
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In summary, a situation where a margin call might occur is due to use of excessive use of leverage, with inadequate capital, whilst holding on to losing trades for too long, when they should be closed.
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Margin ratios are usually much smaller in futures than for stocks, where leverage ratios are typically 65:6, which is equal to a 65% initial margin requirement, but this varies depending on the underlying asset, and whether the trader is a hedger or a speculator—speculators have a slightly higher margin requirement. Forex accounts have an even lower margin requirement, which may vary, depending on the broker. Regular forex accounts typically allow 655:6 ratios, which corresponds to a 6% margin requirement, and the typical ratio for a forex mini-account is 755:6.
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The most general definition of margin, one that covers both buying and shorting securities, is the ratio of the equity of the account divided by the value of the securities. The equity of the account is simply what is left when the debit balance is paid in full or the shorted stocks have been bought back and returned to the lender.