Question about retail FX margin

Discussion in 'Risk Management' started by lentus, Aug 4, 2019.

  1. lentus


    Let's say I trade with Oanda. Oanda will you give you a Margin Call if your Margin Level is 100% or less.

    Margin Level = Equity / Margin Used

    After a Margin Call you have to some time to either lighten the load or add more cash to account. If you fail to do either Oanda will liquidate the position.

    Now to my scenario. Let's say I'm trading EUR/USD and have $10,000 in my account and using 50:1 leverage. Let's say I want to put the whole enchilada into to short EUR. So I use $10,000 to short 10000*50/rate units of EUR.

    Let's say I just got into the trade and it didn't move at all.

    Now Margin Level = $10,000/$10,000 = 100% and I'm getting a Margin Call.

    Why is Oanda doing this? I haven't lost a penny yet yet they already want to close my position. Let's say the rate is 1.1117 So I shorted 449761 EUR Notional. Now Pip Value = $0.0001 * 449761 = $45. It would take $10,000/$45 = 222 pips of a movement against me to deplete my Equity to $0. All the while Oanda lost nothing until that happens.

    So why is Oanda screwing with me while I lost 0 out of 222 pips before they even begin to start taking losses?
  2. Think of margin as "buffer". No buffer, margin call.
  3. bbpp


    Each broker has its own margin policy.
    Some brokers liquidate only after the third margin call, while other don't have margin call at all, they simply liquidate if your account fall below certain margin level.

    In oanda case, they don't close your position when they first give you a margin call.
    By my understanding, they close your position if:
    1. your Margin Closeout Value falls to less than half of your Margin Used.
    2.your account remains under-margined for 2 consecutive trading days.
    Last edited: Aug 4, 2019
  4. lentus


    But why does there need to be a buffer? It's my money to lose, no?
  5. lentus


    OK, that doesn't answer my question though. In the example, I gave Oanda will close my position after 2 days even though I haven't lost anything. Just because my Margin Level is at 100%. Why doesn't the broker just let me lose the whole balance?
  6. Here he is again, margins margins margins. Dude, are you aware that a penis pump is not gonna magically double the size of your little Johnny Boy? If you have trouble caughing up enoug dough to partake but instead keep on whining about liquidation policies then perhaps you are probably hopelessly under capitalized.
  7. Not exactly. If there is a 50:1 ratio and you put up $10K, you put up 2% and your broker puts up 98%.

    A quick, back of the envelope calculation (i.e., probably wrong) shows that most currencies have daily
    deviations of about 0.3%. On wild swings (75% percentile) it is closer to 0.5%.

    So, in a great case, it would take maybe 6 trading days to exhaust your contribution to the trade. Oanda gives you 2. I think that's a good trade off for lending you $490K!

    Or too large a size. OP can simply trade smaller.
  8. bbpp


    Of cause you lost something.When you took a position,you lost spread, which would cause system to detect your balance to fall a little bit,and that caused your account to fall below margin requirement,since you were at 100% margin.
    Last edited: Aug 4, 2019
    nooby_mcnoob likes this.
  9. lentus


    OK, fine that's a technicality. My point is there are 222 pips to go before the broker even begins to be at risk of losing their own capital. So why are they screwing with my position at this point? What sense does it make for them?
  10. lentus


    Also, to simplify further, let's assume I'm with who has a very simple liquidation policy of - Margin Level hits 100%? Autoliquidation.
    #10     Aug 4, 2019