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 leverage the funds in your account and potentially generate large profits relative to the amount invested. The downside is that you have an equal opportunity to incur significant losses in your account. It is a good practice to utilize stop loss orders to limit potential losses when utilizing leverage.


What is Margin?

Margin: A good faith deposit or performance bond. In leveraged trading, the margin amount is held in deposit while the trade is open. The amount of margin required to enter a trade is determined by the rules discussed below. 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.

Initial Margin: The initial deposit amount held in deposit when a trade is opened. The amount of margin required depends on the currencies being traded.

Leverage: The reciprocal of margin. For example 2% margin is the same as 50:1 leverage. The maximum leverage allowed is determined by the regulators in each country. Clients and OANDA may choose to be conservative and limit leverage utilized to lower levels than allowed by the regulators.

Maintenance Margin: The minimum amount of margin equity required to be maintained in an account. This value is lower than the Initial Margin.

Margin Call: When losing positions result in account equity falling below the maintenance margin measured at 4:00PM ET daily, you will receive a margin call alert by email requiring you to deposit additional funds or close open positions so as to return your account equity to the Initial Margin value. An account whose value rises above the initial margin level during the trading day but falls below the maintenance margin level at the 4:00 PM ET measurement will be issued a margin call as a result of that measurement. A margin call is resolved only if the account margin is above the initial margin requirement at 4:00 PM ET.

OANDA will send daily margin call emails to accounts that fall below margin requirements at 4:00 PM ET. 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.

Liquidation Margin: The Liquidation Margin is equal to 50% of the Initial Margin.

Margin Closeout: If your account falls below the Liquidation Margin level, all of your open positions will be immediately liquidated. 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.

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.


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

 

List of Major Currencies: AUD, CAD, CHF, EUR, GBP, JPY, USD, NZD, NOK, SEK, DKK

For pairs with both currencies on the above list: 2% initial margin or 50:1 leverage.

For pairs with one or both currencies not on the above list: 5% initial margin or 20:1 leverage.

OANDA clients may impose a lower leverage limit on their FXTrade accounts. In the event a lower leverage limit is specified (higher required margin percentage), the margin call alert email will be triggered at a maintenance margin level corresponding to the lower limit.


Some companies outside the U.S.A. may offer 100:1 leverage, or even 200:1, but OANDA believes these levels are far too risky and could cause clients to lose all their funds very quickly. Serious professionals seldom trade at those levels of risk.

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 by meeting the margin requirements at the 4:00 PM ET daily margin check, a new count will start again from the day the account falls below margin requirements again. 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. 

Loading nanoRep