Changing margin settings and leverage

Beginner Questions
#1

Hi,

I need to change the margin settings on my account so that I can earn interest on certain of my positions that I inevitably end up holding overnight and at the moment, because of my margin settings, I am paying interest when I could be earning interest.

My broker is quite happy to make the change (even with currently open positions) but I just need to confirm something before I instruct them to go ahead.

My current margin setting is $50.00 USD per lot and my leverage is 200:1.

If they change my margin setting to $200.00 USD per lot then my leverage will change to 50:1.

My question is: how is this going to affect my buying power? In my mind it is exactly the same thing i.e. $50.00 USD per lot with 200:1 leverage is exactly the same as $200.00 USD per lot with 50:1 leverage. Am I correct?

Basically (all things being equal and my deduction above being correct) it will mean that a) I can earn interest on certain positions (and yes I know I will pay on others but at the moment I pay regardless) and b) it saves me from clicking four times to buy four lots of $50.00 USD (which is what I have started doing now anyway to simulate buying $200.00 USD lots in anticipation of having my margin setting changed anyway).

Your prompt response would be greatly appreciated - the interest is killing me.

By the way - who pays this interest to us? Is it the broker? And if it is the broker - although that is jolly nice of them - why do they do this? I mean if they did not pay us interest we would still have our accounts open would we not?

Regards,

Dale.

#3

Thanks hobbit for the reply.

I’t would seem that from my posts I have created the impression that I am a sort of defensive type of person and cannot take criticism from anyone and I assure you that that is not the case and I do not take offence to any comment made (as long as it is constructive of course and not personal).

The only thing that I get carried away with when making my point is this issue of encouraging people to trade for months with demo accounts (I am not going to rehash that here as I am sure that my feelings on this subject are already well know across this board and I don’t care who tells me differently I stand by my opinion on demo trading).

I assure you that no offence is taken - particularly from your input.

You are right about me not having a focused strategy or system though - at the moment I am trying out everyone elses systems to see if they work for me and am experimenting with some changing some of the values of the indicators to see if I can ‘tweak’ them so as best to fit my trading style and where I want to go in the long run.

The main reason that I wanted to change by margin was because, like I said, I have started buying four lots of $50.00 per lot in anticipation of changing my margin setting to $200.00 per lot and this is a pain in the a**e. I did NOT realise that if my margin setting changed then my leverage would also change so basically I am in exactly the same position (if I’m right - you did not throw any light on whether my logic was right or not by the way).

The only benefit I can see that I would get from changing my margin setting is the fact that I would receive interest SHOULD I leave positions open at night. You must remember that now that I have MARGIN and more MARGIN I am tending back toward my beloved USD/ZAR and Gold (I live in South Africa in case you did not know) and because nine times out of ten you are in a long position these postions are eligible to earn interest - so why not? If nothing else it makes up for the price of the spread. No - I am not interested in it for the carry trade - although if the truth be told - if I had M-A-R-G-I-N - and then more M–A--R–G--I–N - there is someone else on this forum who has come up with the idea of using hedging to make copius amounts of interest overnight which does not sound like a bad thing to me except for the fact that I suppose that this is not really trading.

Now - is a margin setting of $50.00 USD per lot and leverage of 200:1 THE SAME AS a margin setting of $200.00 USD per lot and leverage of 50:1???

By the way - thanks for the input.

Regards,

Dale.

#5

Hello hobbit - thank for going to the trouble of responding the way you have.

Don’t worry - maybe I’m not explaining myself properly - because I had an ‘online argument’ with support at my broker about the same thing!

I seem to have got the question right though:

Having a margin setting of $50.00 per lot with leverage of 200:1 is exactly the same as having a margin setting of $200.00 per lot with leverage of 50:1 - that’s what I was trying to figure out.

In other words if my margin setting was changed to $200.00 per lot with leverage of 50:1 - it is exactly the same as having a margin setting of $50.00 per lot with leverage of 200:1. In other words - the only difference is that instead of having to buy 4 individual lots at $50.00 per lot I would be buying 1 lot for $200.00 which is exactly the same as buying 4 individual lots at $50.00. I think that makes sense. It was just the effect of the leverage being reduced from 200:1 to 50:1 that was confusing / concerning me - but - as I understand it - there is no difference between the two options OTHER than the fact that I would then earn interest on certain overnight positions AND I would not have to click on one-click ordering 4 times to open the equivalent of 4 positions. This is a problem because if I buy 4 lots at a time I like them to all be at the same price and most times this is impossible because of the rapid price movement / speed of execution.

At least - I hope I’m right about this. I got a bit of a shock because the support person said that if I decided to change my margin settings while I had open positions I would immediately lose 3 x my available margin (i.e. from $50.00 lots to $200.00 lots the available margin would change). I told them to wait until I have closed my open positions because that did not make sense to me - how could my useable margin just change but any profit / loss on those positions was not also changed by 3???

I really hope I understand this.

Anyway - I need to close these positions before I can make a change - too risky the way they explained it to me.

Regards,

Dale.

#6

Sorry (I don’t seem to be able to edit my last message) - I just re-read your reply.

I think the confusion comes in because you have the (my) figures swapped around:

So if you buy 4 $10,000 lots at 200:1 leverage your total used margin would be $200 and you would be charged/payed interest based on $40,000.

If you bought 1 $10,000 dollar lot at 50:1 leverage your total used margin would still be $200 but you would only be charged/payed interest based on the $10,000.

What I am trying to say is:

So if you buy 4 $10,000 lots at 200:1 leverage your total used margin would be $200 and you would be charged/payed interest based on $40,000.

If you bought 1 $40,000 dollar lot at 50:1 leverage your total used margin would still be $200 but you would only be charged/payed interest based on the $40,000.

On second though - I’m still confused when I read my changes above.

All I’m trying to make sure basically is the following:

Does $50.00 lots with leverage of 200:1 have the same ‘bang for buck’ and $200.00 lots with leverage of 50:1???

Regards,

Dale.

#8

Hello
You can buy/sell only 1-lot by using your margin of $200.-in the case of 2.0%margin.
You can buy/sell 4-lot/ s by using your margin of $200.-in the case of 0.5%
margin.
Forex broker/s buy currencies from bank/s, for instance when you buy EUR/USD at the price of 1.3534, your broker buy the pair at the price of 1.3511 FROM bank/s. THe difference is their profit/s.
THe broker pays
that interest to you, at the same time BANK/s pay that interest to the broker that you use.
Think, broker/s are retailer/s, for instance TESCO/WalMart/.
Hope you understand my explanation.
Best regards,
Db