[quote=“RISKonFX, post:8, topic:131431, full:true”]
What’s your thoughts on this Clint?
I had a look at the FXpro online calc and they take into account the fx rate also when calculating required margin …
Example: from FXpro
Trading 3 lots of EUR/USD using 1:200 leverage with an account denominated in USD.
Trade size: 300,000
Account currency exchange rate: 1.13798
Required Margin: 300,000 / 200 * 1.13798 = $1706.97
Required Margin = Trade Size / Leverage * account currency exchange rate (if different from the base currency of the pair traded)[/quote]
The OP’s question at the beginning of this thread did not deal with the various ways that brokers can determine initial margin – and there are several.
His question dealt with the 60% maintenance margin (which he referred to as 60% margin call) in his particular trading platform.
So, rather than getting into the weeds on the various ways that initial margin can be determined,
I used the nominal formula for initial margin, which is Initial margin = 1 ÷ broker leverage. (In this forumula, broker leverage refers to the maximum allowable leverage offered by the broker – the leverage advertised by the broker.)
Your question addresses the specific ways in which brokers can compute initial margin, and for this we need to back up a bit in this discussion.
First, some basics.
In most jurisdictions, maximum allowable leverage (and/or its cousin, required initial margin) is dictated by regulators. And various regulators have various ways of stipulating what brokers may offer to their retail customers. Typically, a regulator will dictate that no more than a certain amount of leverage may be offered to retail clients, giving the brokers under their regime the option of offering less than the limit.
Some regulators (the U.S. CFTC being a notable example) refuse to discuss leverage, focusing instead on required initial margin. So, back in 2010, when the CFTC began their heavy-handed regulation of retail forex, they specified a minimum of 2% initial margin on major pairs, and a minimum of 5% initial margin on exotic pairs. And initially, U.S. brokers imposed those exact margin amounts.
But, immediately, there was a computational problem.
The 2% and 5% fixed margin percentages worked fine in cases where the base currency in a pair matched the account currency of the customer (USD/JPY in a USD-denominated account, for example), because brokers could conveniently specify required initial margin as $2,000 per lot, $200 per mini-lot, and $20 per micro-lot.
But, for currency pairs in which the base currency did not match the account currency, it wasn’t convenient, at all. For GBP/USD in a USD-account, for instance, the handy $2,000-per-lot formula was off by more than 50%, because GBP/USD was over 1.5000 at that time. In order to comply with regulations, U.S. brokers had to require more than $3,000 per lot initial margin on GBP/USD positions in non-GBP-denominated accounts.
Most brokers adopted one of two ways of handling the variable notional value of positions in which the base currency did not match the account currency. One method, adopted by FXCM (when they were still authorized to do business in the U.S.) was to publish a table of required initial margins for all the pairs they offered. The tables typically specified these margins as whole-dollar amounts, and they typically specified margin amounts which were above the legal minimum, so as to allow some wiggle-room in prices before the tables had to be revised.
The other way of handling variable notional values (as illustrated by the FX Pro forumula which you posted) was to simply factor actual notional values into the equation, regardless of whether the resulting margin amount was a whole-dollar amount, or not.
Different strokes for different folks (or, in this case, different brokers).
Brokers were (and are) free to determine initial margin amounts however they see fit, as long as they don’t go below the minimum required initial margins dictated by their regulators.
And just to add one more confusing element to this discussion, it isn’t really required for maximum allowable leverage to be linked to minimum required initial margin, although we almost always think of it in those terms (as in the margin = 1 ÷ leverage formula, which a gave above). There used to be (and maybe still is) a broker called YouTradeFX which advertised a high leverage limit and ZERO required margin.
I’ve long been an advocate of high leverage limits BECAUSE they generally correspond to low initial margin requirements. But, in the case of YouTradeFX, with no margin requirement at all, excessively high allowable leverage serves no real purpose, and is really just an invitation to over-trade.
You might think that it would follow logically from the way required initial margins are calculated. But, thankfully, it isn’t done that way by any broker that I’m familiar with.
And, until recently, maintenance margin requirements (also called margin-call levels, margin close-out levels, etc.) were not specified by most regulators. So, various brokers adopted levels (percentages of intital margin) which they deemed appropriate. The OP, for example, says his broker specifies 60%. Oanda (US), on the other hand, specifies 50%, and so forth.
Once determined in any particular trade, these two margin amounts (initial and maintenance) do not change while the trade is open.
As part of the new ESMA rules proposed for Europe, it will be mandated that minimum required maintenance margin shall be 50% of required initial margin.
Here’s an excerpt from a recent LeapRate article on the proposed ESMA regs –
“ESMA also outlined a margin close-out rule, which would provide for percentage of margin at which providers are required to close out a retail client’s open CFD. The aim is that, consistently across providers, clients are routinely protected from losing more than what they have invested. This rule would be implemented on a position-by-position basis, such that a retail client’s open CFD must be closed out on terms most favourable to the client at the point in time at which the available sum remaining in the CFD trading account of the initial margin and variation margin relating to that CFD falls below 50% of the amount of the initial margin posted.”
And here’s a link to the article –