I recently opened an account with Oanda with $2,500. As a US broker, they offer 50:1 leverage. However, I am unable to place orders for one lot (100,000) for the USD/JPY pair. I do not understand why I do not have enough margin to place such an order, since it would seem that the minimum amount required would be $2,000.
I am not the greatest at math, but I thought I understood that 50:1 leverage gave me control over 125,000 with a 2,500 deposit.
Where is the flaw in my understanding?
Hello, JM — Welcome to this forum.
• Your math is correct. Leverage of 50:1 corresponds to Required Margin of 2%. The notional value of one standard lot of USD/JPY (or any pair having the USD as the base currency) is $100,000. And 2% of $100,000 is $2,000.
• The 2% margin requirement in the U.S. is the regulator-mandated [I]minimum.[/I] Brokers cannot require less than 2% margin, but [I]they have the option of requiring more than 2%.[/I] Check with Oanda to be sure that you know the current Oanda margin requirement for each pair that you intend to trade.
• Oanda allows their customers to set a [I]personalized leverage level[/I] which is less than the regulator-mandated maximum 50:1. For example, you could set your own Oanda account to a maximum leverage level of 20:1, and this pre-set limit would control what you can do in your account. If you want your account set at 50:1, make sure that it has not inadvertently been set to a lower limit.
This WEBPAGE describes Oanda’s margin policies.
If you scroll down about 6 paragraphs, you will find this explanation:
[B]Margin Requirement:[/B] The margin required for the instrument in your account. This is the greater of the Regulatory Margin Requirement for the instrument and the margin you selected for your account. For example, if the regulator requires 2% (50:1 leverage) on EUR/GBP, and you selected 5% margin (20:1 leverage) for your account, your Margin Requirement for the instrument will be the greater of the two, which is 5%.
• Finally, at first glance, [I]it appears[/I] that you are attempting to trade a position size which is way too large for your account. However, if you are doing true scalping, with strict risk management, that criticism may not apply. Without knowing your style of trading and your risk management protocols, I can’t comment further on your desire [I]to use 50:1 actual leverage[/I] in your USD/JPY trade.
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Thanks for your quick and detailed reply!
I also contacted Oanda about this and was informed their margin requirement for the USD/JPY pair is currently 25:1.
I wouldn’t have an issue with that if they were more transparent about it, but their site simply states they offer 50:1 leverage for major currency pairs and 20:1 for exotic currency pairs. Hence, my confusion - I don’t see how the Yen is considered a “non-major” currency, but apparently Oanda does haha.
And yes, I set TP and SL at 8-10 pips, so I never risk very much per trade. I have also been trading and testing strategies with a demo account for close to a year, so I’m not jumping into trading totally green. I also have a good deal more to contribute to my account should I need to to cover losses, just don’t want to deposit it unless necessary - would rather pretend all my trades will be winners! :59:
Safer for you bro!
And risking 100% from deposit in one trade is not a very good practice. Its basically gambling (playing all-in).
Always focus to the long-run. Hope, you are not here to make one bet and stop.
A lot of brokers seem to be using what I would call “floating” margin requirements nowadays – notably, brokers like FXCM that got burned in the SNB debacle exactly 2 years ago.
FXCM’s current margin requirements are all over the map:
USD/CAD – 2%
EUR/USD, AUD/USD, NZD/USD, EUR/CAD – 2.4%
USD/CHF – 3%
AUD/JPY, NZD/JPY – 3.2%
CAD/JPY – 3.6%
USD/JPY – 4% (the same as your Oanda account)
EUR/JPY – 4.8%
EUR/GBP – 6%
All other GBP pairs – 7%
… and this is not a complete list.
I had a hunch that you’ve got the [I]risk thing[/I] well thought out, and under control.
And holding a large portion of your trading capital [I]outside your brokerage account[/I] is an excellent money-management technique – one that changes all the calculations of [I]risk percentage[/I] and [I]leverage actually used[/I]. These are concepts that many traders just don’t seem to grasp – as illustrated in post #4, above.
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