About AUD or not?


  1. Initial date:

    In this lesson, with the informations from “Example #3: Open a long EUR/AUD position”.

  2. Question:

    There is no information related to AUD, except that “Margin Requirement is 3%”, where 3% is the Margin Requirement for EUR/AUD (taken from a table of above in the lesson).

    I did not understand well the phenomenon in “Example #3”.

    How is it possible to go long EUR/AUD, that means to buy EUR and sell AUD, but the “Example #3” does not make any reference (about AUD) to the fact that it sells AUD, especially since the deposit is denominated in USD ?

Can someone help me understand the phenomenon (step by step) better?

Thanks for your time !

Let me break it down for you.
First of all you need to calculate the leverage, If the margin requirement is 3%, then the leverage would be 33.33:1. This is because leverage is the inverse of the margin requirement. To calculate the leverage, you divide 100 by the margin requirement percentage. In this case, 100 divided by 3 is equal to 33.33. Therefore, the leverage is 33.33:1.
Then when you are going to consider margin for X/Y pairs, (none of them are USD). This is the formula:
Margin= Lot * contract size * price (X/USD) / Leverage

Margin= 10000 (contract size ) * 1.15000 ( Eur/usd price here) / 33.3 ( the leverage) = 345.34

I tried to explain it in the easiest way possible, I hope it helps you out.

Your formula seems to be the same with this:

Required Margin = Notional Value x Margin Requirement x Exchange Rate Between Base Currency and Account Currency