I just noticed recently how USD/JPY and GBP/JPY’s margin requirement seems to have gone up, at least with my broker. A mini lot worth of units used to get a P&L of $1 and 62 cents/pip respectively. Now it’s about 84 cents and 54 cents.
Has anyone else noticed this? Do margin requirements fluctuate depending on the broker, volatility,time of year etc.?
We’ve got a lot to sort out here.
You seem to be confusing required margin with pip-values.
[B]Required margin[/B] is based on (1) the maximum allowable leverage associated with your account, and (2) the notional value of your trade. If you have an account which allows you to use UP TO 50:1 leverage, then this translates to 2% margin required on each trade. This [I]required margin percentage[/I] is applied to the notional value of your trade to determine the [I]margin required in dollars[/I] for this trade.
Example: You have an account, as described above, in which each position requires 2% margin. You open a trade for 1 mini-lot of USD/JPY (10,000 units of USD, with a notional value of $10,000). The margin required on this trade is 2% of $10,000, or $200, and does [I]not[/I] change based on price fluctuations, volatility, or time of year.
[B]Pip-values[/B] are either fixed or floating, depending on your account currency and the pair you are trading. If you have an account denominated in USD, then [I]all pairs which have the USD as the cross-currency[/I] have fixed pip-values ($10/pip per standard lot, $1/pip per mini-lot, etc.).
[I]Pairs which do not have the USD as the cross-currency[/I] — and this includes all yen-pairs — have floating pip-values, which fluctuate with price, but [I]not[/I] with volatility, time of year, etc.
Furthermore, at any given time, all yen-pairs have the [I]same[/I] pip-value. So, there will never be a situation where the USD/JPY and the GBP/JPY have different pip-values in your USD-denominated account.
One of my accounts is with FXCM, here in the U.S. At the present time, my platform is telling me that all yen-pairs have a pip-value of 8¢/pip per micro-lot, 80¢/pip per mini-lot, etc.
Clint explained it very well. One thing I would also add is that you may have witnessed a widening on spread due to the holiday season where liquidity is decreased due to the absence of traders from Europe and the US.
Thanks for the detailed reply. So you’re saying pip values go up and down based on price when the account is USD denominated and USD is the base currency? So if USD/JPY dropped back to 99.xx would pip values go up?
Correct.
Yes, floating pip-values move inversely to price — going up when price declines, and vice versa.
I had a conversation with another poster several years ago, about pip-values for USD/JPY in a USD-denominated account. Here’s the reply I posted at that time —
You can use the information in that reply to find the answer to your question.
But, I’ll do it for you (this time).
Today the USD/JPY closed at 120.40 (ask). Using the info referenced above, we calculate the pip-value:
$1,000 ÷ 120.40 = $8.31/pip per standard lot (100,000 units of USD/JPY, worth $100,000)
If the price of USD/JPY declines to 99.00, then the same formula gives us:
$1,000 ÷ 99.00 = $10.10/pip per standard lot
You can figure the corresponding pip-values for different notional amounts (mini-lot, micro-lot, etc.).
Also, keep in mind that your broker probably rounds off the actual calculated pip-values, especially for smaller notional amounts. So for example, at the present time (based on today’s closing price for USD/JPY), it’s common for a broker to quote the following pip-values:
$8.31/pip per standard lot, $0.83/pip per mini-lot, $0.08/pip per micro-lot, etc.
This rounding-off means that price can fluctuate somewhat [I]without affecting the quoted pip-value[/I] on very small lot sizes.
Note:
Pip-value calculations for yen-pairs are unique.
Because the yen is such a tiny currency unit (approximately 1/100 the size of other [I]major[/I] currency units), the pip-value formula [I]for yen-pairs[/I] is scaled up by a factor of 100.
The pip-value formulas [I]for non-yen-pairs of the form USD/XXX in a USD-denominated account[/I] are –
$10 ÷ ask price of USD/XXX = pip-value per standard lot
$1 ÷ ask price of USD/XXX = pip-value per mini-lot
etc.
Try these formulas on USD/CHF, USD/CAD, etc., and see what results you get.
The number of currency units in your own currency required to buy one unit of the counter currency in the pair you are trading is the basis of the pip cost. It is simply adjusted by moving the decimal right or left to account for whether the currency is listed against your own as a base or a counter, then adjusted further to account for the lot size. If it is listed as the base move the decimal once to the right, if it is listed as the counter move it once to the left. Then move it once to the right for each lot size above micro you are dealing with.
If USD/JPY is 120.45, it takes .008302 USD to buy 1 yen (1/120.45=.008302). Because USD/JPY lists the dollar as a base we must move the decimal to the right once to discover the microlot pip cost (.08302). Brokers round this to .08. To convert this to a minilot move the decimal once to the right (.80). To convert this to a standard lot move the decimal once more to the right (8.00).
If GBP/USD is 1.5558, it takes 1.5558 USD to buy 1 pound (1.5558/1=1.5558). Because GBP/USD lists the dollar as the counter we must move the decimal to the left once to discover the microlot pip cost (.15558). Brokers round this to .16. To convert this to a minilot move the decimal once to the right (1.60). To convert this to a standard lot move the decimal once more to the right (16.00).
These number fluctuated with exchange rates every day.