Position value - please help!

Beginner Questions
1

I am having real difficulty understanding the size of a position value. i would really appreciate some help here from you more experienced guys. I have taken the following example from Oanda’s website just by way of example. The rate they use in the example is out of date but the position value and margin required of the trade [B]does [/B]make sense.

OANDA FXTrade - Margin Rules

“You have set your maximum leverage to 50:1. Your Account is in USD and the current EUR/USD rate is 0.9134/36
[B]The Position Value of 10,000 EUR/USD long is 10,000 EUR converted to USD, which is equal to 10,000 x 0.9136, or $9,136[/B]. The margin requirement for EUR/USD is 2% (when the account maximum leverage is set to 50:1). [B]As a result, the margin required on this EUR/USD position is equal to $9,136 x 0.02, or $182.72.”[/B]

But I am trying to work out the example of a GBP/YEN trade, using the above criteria, and the figures i am getting are incredible. Am i doing something wrong (I would be trading in GBP, not USD):

[B]10,000 x 228.875 [current GBP/YEN rate] or �2,288,750. Therefore margin requirement is �2,288,750 x 0.02 or �45,775.[/B] Is this correct? I have calculated it using the exact same criteria and i get a staggering figure for both position size and margin requirements.

Thanks all.

2

You always use the base currency in the pair to determine position size. In the case of EUR/USD, as the example showed, the position size was in EUR. You multiplied the position size by the exchange rate to get the USD value.

For a cross, it’s the same deal, but you need to remember what to multiply by. In your GBP/JPY questoin, the base currency is GBP so that’s what your position size is base. To get the USD value of the position you need to mutiply through by the GBP/USD exchange rate.

3

thanks. does this mean that the calculations are correct as they stand? if so, that’s a HUGE amount of money one needs to open up a GBP/JPY position - close to �2million!!! I will be trading in pounds/sterling, not dollars.

4

No.

As I said you need to multiply your position size by [B]GBP/USD[/B], not by GBP/JPY.

If you multiply a GBP based position by GBP/JPY you get the JPY value of the position.

5

ok. i am slightly confused. it’s my doing, not yours, you have been really helpful. i will be trading in GBP as i am a uk customer. i want to open a position on GPB/JPY. why do i have to multiply by gbp/usd to calculate the position size. Is this not at odds with Oanda’s own example (albeit they are using the example of eur/usd). thanks.

6

rhody, would this be correct (i mean approx.): 10,000 units x 1.9856 (gbp/usd rate) = position value of �19,856. that sounds more reasonable. thanks.

7

Oanda’s example is based on a USD denominated account. In order to determine USD position value and USD margin requirements you need to convert all positions to USD. That’s what the EUR/USD example did.

If you are trading GBP in a GBP demominated account, then no conversion is necessary. If you are trading 10,000 GBP/JPY, then your position value is 10,000 GBP and your margin requirement is 2% x 10,000 = 200GBP.

8

thanks. sorry, perhaps the info i provided actually made matters worse, sorry about that. so, you mean i don’t even have to multiply my position size by gbp/usd??

9

Not if your account is denominated in GBP.

10

denominated? yes, i will be adding my initial monies in GBP and the currency i trade with will be GBP (pounds/sterling). is this correct? thanks. sorry to be a pain. it’s just that i don’t want to open an account and have immediate margin call payments to make if the position size/margin required is too large.

11

Oanda will not allow you to enter a trade larger than your available margin. In fact, the platform even tells you how large a trade you could put on.

12

thanks rhody. so just to sum up: [B]opening up a position on GBP/JPY for 10,000 units would require approx margin of �200 give or take[/B]? that i can live with. i was getting worried there! also, do you have any experience of oanda as a client? i know they give tight spreads but i have read on thr forum that their trading platform has been having problems as of late.

13

I have used Oanda for many years, both for trading and for teaching (including in the university classroom) because they don’t have fixed lots or minimum account sizes, making them perfect for new traders.

14

and their trading platform seems ok? i have of late of problems with being unable to log in and widening of spreads over the last few weeks? i could be wrong, it’s difficult to decide. i just want a reliable client that treats me right. do they accept uk customers? thanks again.

15

Hi ukvipersden

I live in the UK & have used Oanda for nearly 12 months, in demo form & a live account.

As rhodytrader “they are perfect for new traders”

But in volatile periods such as last week the demo account
tends to crash, with the live account I have no problems.

I do not feel that this should influence your decision to start
to trade with Oanda though. :slight_smile:

:wishes:

Edited to say pips do widen at volitile times this happens with all
brokers though. :slight_smile:

16

thanks DD and also thanks rhody. DD, did it take long to open an account. from what i can see you have to print out quite a few adobe docs and post to their new york address. and then they require passport/Driving Lic for identity. did you actually send these in the post??? thanks.

17

did it take long to open an account

Wow this is testing my memory banks. I traded a demo acount for a while
to get a feel etc.

At this time I decided to open a live account so if & when the time arose
I was ready to go live.

If I remember correctly I emailed “jpged” copies of all the relevent details
to their email address, it then took 24hr to clear.

I also chose to deal in dollars because my paypal account is in dollars.

Sorry I cannot be more precise but it does seem a lifetime ago. :lmao:

18

thanks DD, maybe i will contact them by phone first.

19

thanks DD, maybe i will contact them by phone first.

I have just taken a look at the site & now I remember I faxed the info.

:wishes:

20

and did they accept fax copies of passport/driving license. they seem to imply they want the actual real copies which i would be reluctant to send.