I live in BC where forex regulations are quite strict. I’ve been trying to figure out the affects of these regulations and this is what I came up with:
Margin Rate affects MAXIMUM Leverage
If Margin Rate is 3%, my maximum leverage is 33:1.
However:
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I can chose to leverage myself LESS than the max (ex. by limiting # of positions and/or # of lots)
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Even if my actual leverage is lower than the max, I still have to put up the same margin rate as set by the government (ie. 3%)
Margin Regulation a Double-Edged Sword?
So while a higher margin rate limits the amount that I can leverage (making things “safer”), it also lowers how much unrealized losses I can take/absorb before a margin call (not “safe”).
Can some of the more experienced/knowledgeable forex traders weigh in on this? I think this is my “Ah ha” moment and I would really appreciate feedback on it (whether I’m right or wrong).
Thank you.
[Attached is the Excel model I created to come up with these conclusions]
BC Forex Model.zip (15.9 KB)