hi folks,
i have a question about margin calls. the explanation here does not match with mine
OANDA gives you a margin closeout (or call) when you’ve lost 50% of your used margin:
1.000 Euro equity, 50:1 --> i go long with 50.000 units EUR/USD @ 1.5000
EUR/USD drops to 1.48515 and i lose 500 Euro.
for me, this doesn’t correspond with the explanation on babypips.
Whenever your trade ran your used margin of 50 units down to 25, your trade would close.
And to lose 500E on a 50 unit trade, would need a 2,500 pip move. Not your 148.5 pip move
Oanda’s “units” are dollars. A 50 unit trade is a $50 margin, and on the EUR/USD would equate to about twenty cents a pip. $0.20 * 148.5 pips negative in your hypothetical trade would result in a +/-$29.00 loss.
Just remember, a margin call is mor about the broker protecting themselves, not you. If you ever receive a margin call, there is something fundamentally wrong with how your money management is set up.
Unless you run a martingale system, which will one day bleed you dry. I like my %risk based on account balance method. Very stable, cannot go too wrong if I totally screw up a setup, and account destruction/margin calls will not happen
That’s not correct. As with all brokers, Oanda’s units are in the base currency, so 50 EUR/USD would be 50 euros, roughly $62 at recent exchange rates. If you have a dollar denominated account your margin requirement will be based on the latter number.
ok, assuming i have a EUR account, would my explanation of a margin call be correct?
it’s not about trading, it’s about fundamentals i need for a paper…
Actually, to be technically correct, Oanda does a forced liquidation at the 50% cut-off. They do a margin call notification before that if your equity stays below a certain level (I forget what it is off-hand) for a given period, but that isn’t the automatic close-out seen at 50%.
But, you are correct on the automatic close out. With a 1000 euro starting balance, you’d be closed out after losing 500 euros. And your math looks to be correct. Just realize that how many pips will produce a 500 euro loss will vary with the EUR/USD exchange rate.