What is Margin?

To ensure that the speculator can carry the risk in the case where the position results in a loss, banks or dealers typically require sufficient collateral to cover those losses. This collateral is typically referred to as margin.

This topic explains how to calculate margin requirements on a trade. For more general information, see the introductory information on margin trading and OANDA's margin policies.

As a trader, you are often faced with the following questions:

• Given my account status, how much margin do I have available?
• Given available margin, how large a trade can I make?
• Given a potential trade size, how much available margin must I have?
• How far away am I from a margin call?

Answers to these questions are provided to you automatically by the FXTrade Platform and by the OANDA Margin Calculator. For example,

• the Margin Available field in the Account Summary Table of the FXTrade user interface tells you how much margin you have available;
• the Buy/Sell window will always tell you the maximum number of units you can trade, given your available margin. (also refer to the Units Available Calculator)
• the Margin Calculator tells you how much margin you need for a particular trade; and
• the Account Summary of the User Interface indicates how far away from a margin call you are with the “Margin Call” field.

1. Calculating the Net Asset Value
2. Calculating the Margin Used
3. Calculatng the Margin Available
4. Calculating the Margin Required for Opening New Trades
5. Calculating the Margin Call

The term Net Asset Value represents the current value of your account. It includes your account balance as well as all unrealized profit and losses associated with your open positions. If you were to liquidate your account by closing all positions and withdrawing all your funds, then the Net Asset Value indicates what that amount would be.

If you have no open positions, then the Net Asset Value is simply equal to your Account Balance. (The Account Balance is equal to all of the funds ever deposited into your Account, minus all of the funds ever withdrawn from your Account, adjusted for interest and any profits or losses that have been realized through trading). The Account Balance is displayed in the “Account Summary” section of the FXTrade User Interface.

If you have open positions then it gets just a bit more involved. The Net Asset Value is equal to your account balance plus/minus any unrealized P/L.

Unrealized P/L refers to the profit or loss held in your current open positions. This is equal to the profit or loss that would be realized if all your open positions were to be closed immediately.

Example:
If your account is in USD and you are currently long 10,000 units EUR/USD, which was bought at 0.9136, and the current exchange rate for EUR/USD is 0.9125/27, then that position represents 10,000 x (0.9125 - 0.9136) = 10,000 x (- 0.0011) = - 11, or an unrealized loss of $11 USD.

Your Unrealized P/L continuously fluctuates with the current exchange rates if you have open positions and is displayed in the "Account Summary" section of the FXTrade user interface.

Net Asset Value is the sum of your Account Balance and your Account’s Unrealized P/L. It represents the current value of your Account. The Net Asset Value of your Account continuously fluctuates with the current exchange rates if you have open positions and is displayed in the "Account Summary" section of the FXTrade user interface.

Margin Used is equal to Position Value multiplied by Required Margin, summed up over all open positions. Position Value is the size of the position (in units) converted from the Base currency of the currency pair in question to your Account currency using the ask rate if the position is long and the bid rate if the position is short.

Example:
You have a USD account and a short open position of 10,000 units EUR/USD.
If the current EUR/USD rate is 0.9134/36, then the EUR/USD Position Amount is equal to (10,000 x 0.9134) = 9,134 USD.

Required Margin depends on the currency pair and the maximum leverage set for your account:

Example:
You have the following open positions: 10,000 long EUR/USD and 20,000 short EUR/CZK.

You have set your maximum leverage to 50:1. Your Account is in USD and the current EUR/USD rate is 0.9134/36
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. The margin requirement for EUR/USD is 2% (when the account maximum leverage is set to 50:1). As a result, the margin required on this EUR/USD position is equal to
$9,136 x 0.02, or $182.72.

The Position Value of 20,000 EUR/CZK short is 20,000 EUR converted to USD, which is equal to 20,000 x 0.9134, or $18,268. The margin requirement for EUR/CZK is 4% (when the account maximum leverage is set to 50:1). As a result, the margin required on this EUR/CZK position is equal to $18,268 x 0.04, or $730.72.

The Position Value of your account is $9,136+$18,268 = 27,404. The Margin Used on your open positions is equal to $913.44.

Example:
Same example as above but with maximum leverage set to 20:1.
The Position Values remain the same, but the margin required is equal to 5% of the Position Value, which is ($9,136 x 0.05) + ($18,268 x 0.05) = $456.80 + $913.40. Hence, the Margin Used on open positions is equal to $1,370.20.

We are finally at the point we can calculate the margin a trader still has available to initiate new trades.

Margin Available is equal to the greater of $0 or “Net Asset Value” minus the “Margin Used”. Note that this value continuously fluctuates if you have open positions: the Net Asset Value changes with the value of your open positions, and Margin Used changes over time as the exchange rates change. If Margin Available is $0, then you cannot open new positions or increase existing positions.

Example:
If your Net Asset Value is equal to $12,000 USD, your maximum leverage is set to 50:1, and:

(a) the Total Position Value is $100,000 USD for a position which is comprised of a Major Currency Pair, then the Margin Available is equal to 12,000 - (0.02 x 100,000) = 12,000 - 2,000 = $10,000 USD. On the other hand, if Net Asset Value is equal to $1,990 USD, then the Margin Available is equal to $0, because 1,990 - 2,000 = - 10, which is less than $0.

(b) the Total Position Value is $50,000 USD for a position which is comprised of an Non-Major Currency Pair, then the Margin Available is equal to 12,000 - (0.04 x 50,000) = 12,000 - 2,000 = $10,000 USD. On the other hand, if Net Asset Value is equal to $1,990 USD then the Margin Available is equal to $0, because 1,990 - 2,000 = - 10.

(c) the Total Position Value is $150,000 USD, made up of $100,000 USD for a position which is comprised of a Major Currency Pair and $50,000 USD for a position which is comprised of an Non-Major Currency Pair, then the Margin Available is equal to 12,000 – [(0.02 x 100,000) + (0.04 x 50,000)] = 12,000 - 4,000 = $8,000 USD. On the other hand, if account equity is equal to $1,990, then the Margin Available is equal to $0, because 1,990 - 4,000 = - 2,110.

Margin available is also displayed in the Account Summary section of the User Interface.

Calculating the Margin Required to open a new trade is relatively straightforward in most cases. If you are creating a new position or are increasing an existing position, then you can calculate the Margin Required for the new trade as described above. If the Margin Required is less than or equal to the Margin Available, then you are allowed to make the trade. If the Margin Required is greater than the Margin Available, then your order will be rejected should you submit it.

You are always able to execute a trade if it reduces a position of your account. If your trade reverses a position (that is, goes from long to short, or from short to long), then it is easiest to consider the margin requirements of your positions immediately after executing your order under the assumption your order is successfully executed. If the margin requirements are less than the Net Asset Value under that assumption, then you have sufficient margin to make the trade.

The Margin Used (that is, the margin requirement of your open positions) divided by two must always be less than the Net Asset Value of your account. If this requirement is not met, then a margin call will occur without warning, and with that margin call, all your open positions will be closed. You are responsible for monitoring your account to see if a margin call may happen.

For your convenience, the “Margin Call” field in the Account Summary of the FXTrade user interface is always set to the Margin Used divided by two. The closer this value is to the Net Asset Value, also shown in the same table, the closer you are to a margin call.

For more information on what happens and what to do in the event of a margin call, go to OANDA’s margin call policies.

Example:
The FXTrade Platform has determined, as described above, that for your open positions, you have a margin requirement of $10,000 USD. You currently have $10,000 USD in your Account and Unrealized P/L of $1,000 USD for a Net Asset Value of $11,000 USD.
The exchange rate moves unfavorably against your open position. When your Unrealized P/L approaches -4,750 USD, your Net Asset Value has now declined to $5,250 USD. Since this is within 5% of half the margin requirement, FXTrade will issue a first warning. In our example,
($10,000 / 2 ) x 1.05 = $5,250

The exchange rate continues to move unfavorably against your position. When your Unrealized P/L approaches -4,875 USD, your Net Asset Value has now declined to $5,125 USD. Since this is within 2.5% of the margin requirement divided by two, FXTrade will issue a second warning. In our example,
($10,000 / 2 ) x 1.025 = $5,125

The exchange rate continues to move unfavorably against your position. When your Unrealized P/L exceeds -5,000 USD, your Net Asset Value has now declined to below $5,000 USD. Since the Margin Requirement for your open positions (=$10,000) divided by half (=$5000) is now higher than your Net Asset Value, and FXTrade will automatically close all your open positions.