OANDA fxTrade Margin Rules
Avoid margin closeouts. Know about margin and how it works.
The OANDA fxTrade platform supports margin trading, which means you can enter into positions larger than your account balance. One advantage of margin-based trading is that you can strongly leverage the funds in your account and potentially generate large profits relative to the amount invested. The downside is that you can potentially incur significant losses in your margin capital very quickly.
What is Margin?
To ensure you can cover any losses you might incur on your positions, OANDA requires sufficient collateral. This collateral is typically referred to as margin. Although there is no minimum margin deposit required to open an fxTrade account with OANDA, the Margin Available in your account will limit the size of the positions you can open.
The term leverage is often used to describe the margin requirements. For example, leverage of 50:1 corresponds to a margin requirement of 2% (1 divided by 50 is 0.02 or 2%). A 2% margin requirement means that, if you wish to open a new position, then you must have 2% of the size of that position available as margin. Another way of saying the same thing: for each dollar of margin available you can make a $50 dollar trade.
OANDA offers a maximum leverage of 50:1 for major currency pairs (and 20:1 for minor currency pairs). We also enable our clients to cap their leverage at 40:1, 30:1, 20:1, or 10:1. We recommend leverage of 20:1 or lower.
Nobody Profits from Margin Closeouts!
Some people erroneously believe that OANDA might benefit from a client getting a margin closeout. The truth is that OANDA does not benefit at all. Traders who lose money have less money to use for trading and may reduce their trading activity. As a company, OANDA benefits most when its customers are trading.
The bottom line is that each margin closeout harms a client and it harms OANDA. But it also protects clients from greater losses.
OANDA’s Margin Requirements
OANDA fxTrade requires a minimum margin of 2% (or maximum leverage of 50:1) when both currencies/commodities in a currency pair are in the following list:
|AUD, CAD, CHF, EUR, GBP, JPY, USD|
|NZD, NOK, SEK, DKK|
If one or both of the currencies/commodities in a currency pair are not in List 1 above, OANDA fxTrade requires a minimum margin of 5% (or maximum leverage of 20:1). This is a CFTC requirement, and does not apply to precious metals pairs (see sidehead).
The following table shows fxTrade margin requirements for OANDA’s available leverages:
|Margin Requirement (if both currencies are in List 1)||10%||5%||3.3333%
|Margin Requirement (if one currency is not in Table 1)||10%||5%||5%||5%||5%|
Leverage Is Not Available for Gold and Silver Pairs
You can trade precious metal pairs (Gold, Silver, Gold/JPY, Silver/JPY, Gold/Silver) at our OANDA Corporate (U.S.) Division, but only on a non-leveraged basis (with 1:1 margin). This means you need enough margin to cover your open metal positions in full at all times, or you will receive a margin closeout.
This restriction, in effect as of Friday, July 15, 2011, is mandated by the U.S. Dodd–Frank Wall Street Reform and Consumer Protection Act, which prohibits U.S.-based Retail Foreign Exchange Dealers from offering leveraged retail trading in commodities, including precious metals.
What Happens with a Margin Closeout?
You must maintain sufficient margin in your account to support your open positions. You are responsible for monitoring your account to prevent margin closeouts.
A margin closeout will be triggered in the following circumstances:
When the Margin Closeout Value declines to half, or less than half, of the Margin Used. The fxTrade platform will try to alert customers who are signed in to the fxTrade platform when the Margin Closeout Value falls within 5% of a margin closeout, and again when the Margin Closeout Value falls within 2.5% of a margin closeout. When the Margin Closeout Value declines to half, or less than half, of the Margin Used, all tradable open positions in the account will automatically close using the current fxTrade rates at the time of closing. If trading is unavailable for certain open positions at the time of the margin closeout, those positions will remain open and the fxTrade platform will continue to monitor your margin requirements. When the markets reopen for the remaining open positions, another margin closeout may occur if your account remains undermargined.
Please note: in a fast moving market, there may be little time between warnings, or there may not be sufficient time to warn you at all. Be mindful of the “Margin Closeout Percent” field in the Account Summary of the fxTrade user interface. The closer the Margin Closeout Percent is to 100%, the closer you are to a margin closeout.
- OANDA will send daily emails to accounts that fall below margin requirements at 4 p.m. Eastern time. When an account remains undermargined for 7 consecutive trading days, all tradable open positions in the account will automatically close using the current fxTrade rates at the time of closing. Any remaining open positions will automatically close at the current fxTrade rate when the markets for those instruments re-open.
For example, if your account remains undermargined, starting on Monday before 4 p.m., an automatic margin closeout will occur on the following Tuesday at 4 p.m. unless a margin closeout occurs earlier due to the Margin Closeout Value declining to half, or less than half, of the Margin Used. Saturday and Sunday do not count towards the 7 consecutive days as trading is not available on weekends (see OANDA Hours of Operation). If the account recovers before the end of 7 consecutive trading days, a new count will start again from the day the account falls below margin requirements. For example, if your account is undermargined on Monday at 4 p.m., recovers and is adequately margined on Wednesday at 4 p.m., and then falls below margin requirements again on Friday before 4 p.m. and continuously remains undermargined, a margin closeout will occur 10 days later on Monday starting at 4 p.m.
See more detailed information on how to calculate margin.
How to Avoid Margin Closeouts
Take proactive measures to avoid getting a margin closeout on your account. For example,
Monitor the status of your account continuously.
Use a lower leverage so you can impose a higher margin requirement on yourself. This way, you will not be tempted to enter into positions beyond your comfortable leverage level. You will also be aware of a potential margin closeout sooner, and be able to increase leverage as a last resort to head it off.
Note: If you choose a lower leverage, constant monitoring is still required to avoid margin closeouts.
Specify a stop-loss order for each open trade to limit downside risk. You can specify the stop-loss rate at the time you issue a trade, or add a stop-loss order at any time for any open trade. You can also change your stop-loss orders at any time to take current market prices or other conditions into account. (Click on an open trade in the "Trades" table, then click "Modify" in the pop-up window to change the stop-loss.)
Note: Your trade is closed at the current fxTrade rate, which may vary from your stop loss price -- especially when trading resumes after periods of market closure.
If you happen to be close to a margin closeout, the unique features of the fxTrade platform provide some simple strategies to avoid it:
Incrementally reduce the size of your positions as you get close to a margin closeout. (fxTrade allows you to trade in arbitrary units, as opposed to fixed lots, which makes this simple to do.)
For example, if you get a margin warning, reduce the size of all your open positions by 10%. This effectively lowers the amount of margin required, giving you more breathing room.
Close individual positions to reduce the amount of margin required.
If you are using a lower leverage, you can increase the leverage on your account as a last resort.
Transfer additional funds into the account from another subaccount.
Add funds to the account. Note, however, that the time it takes to add funds could mean your funds arrive too late.