Maxing-out the available margin in an Oanda account

Beginner Questions
1

I was playing around today and stumbled onto something that I’d like to get a little more clarification on. I fully admit I’m a klutz when it comes to math, so I want to make sure I’m understanding how this works correctly. In other words, I want to fully understand what level of risk I would be committing to if I chose to trade this way.

First of all, I should say that my “understanding” of how Oanda works is as follows. I cannot find this in writing on their website, but I’ve seen other people describe it this way. Since I’ve never actually experienced it, I can only assume it is correct:

My understanding is that in a 50:1 account, Oanda will only allow me to commit so many units as would equate to half of the current account equity. At that point, the platform will no longer allow additional units to be committed and it will say “insufficient funds” if you try to commit more (that part I have seen).

At 50:1 leverage, my understanding is that the above described units is equivalent to 2% of the account equity.

As the position moves against you, being fully maxed-out with committed units in trade, Oanda will allow the position to reach a max of 100% equity loss, with various warnings along the way. At some point (what point?) they will put the account in a warning mode that requires you to bring the equity back inline within 7 days, or else you risk automatic position closure (as I understand).

So here is my thinking… if I am a daytrader who closes positions by the end of every day, then there is no need to worry about the 7-day warning window, right?

And if taking a fully-maxed position still allows me plenty of room for the trade to develop, then why not?

I am basing this on my risk tolerance for the strategy. I would set an automatic stop at the level that meets my threshold of pain, that threshold which tells me I need to stop risk and live to trade another day.

At the same time, it seems like fully maxing the units commitment would likewise maximize the profit potential when the trade works in my favor.

PLEASE TELL ME WHERE MY LOGIC IS FLAWED. I’d love to hear your criticism.
Thanks

2

The 50:1 leverage limit means you can enter positions valued up to 50 times the value of your account. You’re full account is used for the 2% initial margin requirement. Margin call will happen when you reach the point where your account value only covers 1% of the position (as I’ve come to understand Oanda’s policies). Margin call is automatic. Once it’s reached, Oanda will close positions immediately. There’s no seven days to bring your account balance back up. You won’t even get to the end of the day.

3

Thanks rhodytrader.
This is what I was talking about with regard to the 7-days. I think they are saying that, if your account is below the initial margin requirement at the end of the day, they will inform you once daily via warning. If your account if below the initial margin requirement for 7 days, but not fully exhausted, they will still close your positions after 1 week. Please correct me if I’m wrong on this:

After 7 consecutive daily margin alerts that your available margin does not meet minimal requirements (2% for major pairs; 5% for minor pairs). These alerts are sent at 4 p.m. Eastern (New York) time.

4

You’re not wrong, just incomplete. Keep this bit in mind as well:

[I]Margin Used for your open positions divided by two must always be less than the Net Asset Value of your account. When this requirement is not met any longer, then a margin closeout will occur immediately without warning and all your open positions will be closed.[/I]

That’s what I was talking about before in terms of a margin call and automatic position closure. You can get away with your account value falling below the 2% margin requirement for a while, but once you go below half that level you trigger the “margin closeout”.

5

Yes that seems to make sense. Thanks for adding that (didn’t mean to take it out of context about the 7-day thing).

Generally speaking, I am watching the Unrealized Gain/Loss figure. This figure updates in realtime while a trade is in progress. My emergency stop level (max loss) is based on a percentage of this Unrealized Loss figure, which should always be far less than half my account NAV.

I guess the reason I’m somewhat confused is because I don’t understand how I can fully max-out the available units yet be so far from my emergency stop level, both $percentage and pips-wise.

6

Well, you can think of it this way. If the maxed out position you’re in goes against you by 1% or more (for example, EUR/USD going from 1.36 to 1.3464 if you’re long) then the margin closeout will happen.

7

I’m looking at it from a scalping point of view. I’m usually measuring the % move in my account equity, not the currency value. Your example is 136 pip move, which is way more than I would need to pull the trigger. I’m looking at moves on a smaller timeframe where a few pips in the wrong direction would be enough to trigger my (mental) stop. But I would also use a somewhat extreme hard stop for emergencies such as system failure (or trader failure LOL). According to my math (which I surely hope is correct), even this extreme stop level keeps me far from the margin call point. If this logic is correct, then I don’t understand why I shouldn’t strike with max force as frequently as possible?

8

If you have a positive expectency system then you absolutely should apply it as often and as large as you can reasonably do. The one thing you do have to account for, though, is risk of ruin. What “ruin” means is something for you to decide. Whatever it is, though, you need to take a look at worst case scenarios - be they trader-error or the system producing a lengthy string of losers - and see what kind of impact that would have on your account balance. Then, adjust trading size to avoid ruin.

1 Like
9

Hi!

I want to revive this ancient thread.

For the last two days I was trying to wrap my head around Oanda’s margin rules. Here are two quotes of their rules.

Margin Closeout Value: The Margin Closeout Value is equal to your balance plus your unrealized P/L from all open positions, converted into the currency of the account, all calculated using the current midpoint rates.

Margin Closeout: If your Margin Closeout Value falls to less than half of your Margin Used, all open positions will be automatically closed using the current fxTrade rates at the time of closing.

So as far as I understand by ‘margin closeout value’ they mean equity. And a ‘margin closeout’ is a margin call. Am I correct?

Now from doing my homework I thought a margin call happens as soon as my equity runs lower than my margin used. Why would Oanda give me another half of my margin used to blow?
I mean isn’t this bad for Oanda?

Or am I completely misunderstanding something here? Any help would be fun. :smile:

Thanks!

10

do you still trade ?