That is, is the cost or amount of capital required the same position size different for different pairs. I am using Oanda demo account and I believe it is all spread based, no commission. I am demoing with very small account to simulate real world amount of capital. Well long story short position size that I can afford on one pair I cannot afford on another pair. Am I missing something? Or is that how it is? I was thinking same position size would be possible on all pairs?
Oh I just had a thought maybe it is due to the exchange rate when I try to use a pair that is not denominated in U.S. Dollars which is what my account is in?
If that is the case then it seems we should be mindful of this when choosing position size that would mean not all .05 lots are the same as far as what you are risking and rewarding is that right?
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Oh I just had a thought maybe it is due to the exchange rate when I try to use a pair that is not denominated in U.S. Dollars which is what my account is in?
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thanks meads – important info for sure – I was naively thinking that I could just have a standard position size like .03 for all trades – but as this shows that if I did it that way I would be unwittingly putting more weight on trades involving certain pairs
Are you using MT4 or fxTrade? If you are not using fxTrade, switch to that immediately so you can trade odd lots.
You are totally right. To buy 1,000 units of EUR/USD at 1.0800 you need $1080. If a broker gives you 50 to 1 margin on that you need 1/50th of $1080 which is $21.60 (most dealers round that up too). To buy 1,000 units of GBP/USD at 1.4800 you need $1480. At 50 to 1 margin you need $29.60. In addition to that, some dealers allow different margin ratios on different pairs due to their own particular issues. So that can skew the numbers further.
FXCM for example currently requires $24.00 per 1,000 on EUR/USD and $34.00 per 1,000 on GBP/USD. Oanda, as far as I understand does NOT round (I use both dealers). You can check out their margin calculator here:
CAUTION: If you are running into margin requirements as a limitation in taking a trade, you are taking on very high levels of risk and will likely suffer a major setback or blow up. If you are trading more than 1 to 1 in a given pair, you are risking a lot in that pair. If the account is $1000 and you buy .05 lots of EUR/USD at 1.0800 you are leveraged 5.4 to 1 (you still have a lot of margin available from your dealer but that is a lot of risk in one pair). A 10% move against you of 1080 pips would set you back $540 (54% of your account!). Don’t think your stop loss will save you. A black swan could be behind the next pip.
If you have a $5,000 account and you buy .05 lots of EUR/USD at 1.0800 you are already leveraged 1.08 to 1. In that case, a 10% move against you of 1080 pips would put your account down $540 (10.80%). While that is safer than 5.4 to 1, it is still pretty unnecessarily big and it means a 20% move would knock 21% off of your account. That happened to me in January. Take my loss as your good fortune and trade less than 1 to 1 in any given pair.
Because you are with Oanda you can trade odd lots in fxTrade. So if you have a small account you can trade small amounts.
The margin requirement is determined by the base currency or first currency of the pair you are trading.
The reason that the margin requirement (for US accounts) to trade 1k GBP/USD is $34, while the requirement for EUR/USD is only $24 is because 1,000 British Pounds are worth more than 1,000 Euros. Therefore, you have to put up more margin in US Dollar terms to trade GBP-based currency pairs than to trade EUR-based currency pairs.
A complete list of margin requirements for all currency pairs can be found below.
[ul]
[li]US margin requirements: bit.ly/1tTxIcY
[/li][li]UK/International margin requirements: bit.ly/1twtIev
[/li][/ul]
Understood, but with FXCM the numbers are rounded and rounded to different levels.
1080/50=21.60 - FXCM rounds this up 11% to $24 - Oanda uses the 21.60 number
1480/50=29.60 - FXCM rounds this up 15% to $34 - Oanda uses the 29.60 number
can i just ask seeing that fxcm lost $225 million during snb black swan, how was the atmosphere at fxcm do you work amongst many of your colleagues, was everybody ****ting themselves thinking fxcm are gonna go bust?
Margin requirement is different for different pairs. Its also differs from broker to broker. If you have micro account, then you can trade with less investment.
If you trade a USD-denominated FXCM account, then only the margin requirements for non-USD based currency pairs are rounded up and only slightly. (With a GBP account, only non-GBP pairs are rounded.)
This is so that your margin requirements can remain fixed instead of changing from one moment to the next as the exchange rates fluctuate. The feedback we have received from a great many traders* indicates that most of them prefer our method to the alternative which would result in floating margin requirements.
[I]* FXCM has a client base of over 190,000 active retail accounts as of the latest publicly-available data.[/I]
I am not saying one method is better than the other. I am just pointing out that they are different methods. The OP is running into margin limitations and when one is doing so these small differences suddenly matter. I only pointed out that FXCM uses a different method than Oanda. I trade with both dealers. I think FXCM does a fantastic job and I love what they are doing. Bravo! Keep up the good work!
