Margin and Leverage

Defining how you trade with PomeloFx.

As you start your trading career, two of the most fundamental concepts for you to grasp is the use of Leverage & Margin and, how the Leverage determines the required Margin.

Flexible leverage between 1:1 – 1:200
Secured deposit & withdrawal methods
Real-time risk exposure monitoring
No changes in margin overnight or at weekends

About Margin

Margin is the amount of collateral to cover any credit risks arising during your trading operations.

 

Margin is expressed as the percentage of position size (e.g. 5% or 1%), and the only real reason for having funds in your trading account is to ensure sufficient margin. On a 1% margin, for instance, a position of $1,000,000 will require a deposit of $10,000.

 

So that you can open new trades, the margin level in your trading account needs to be equal or above 100%; otherwise, the new trades will result in your trading account being fully hedged.

About Leverage

Using leverage means that you can trade positions larger than the amount of money in your trading account. Leverage amount is expressed as a ratio, for instance 50:1, 100:1, or 200:1. Assuming that you have $1,000 in your trading account and you trade ticket sizes of 200,000 USD/JPY, your leverage will equate 200:1.

How would it be possible to trade 200 times the amount you have at your disposal? At PomeloFx you have a free short-term credit allowance whenever you trade on margin: this enables you to purchase an amount that exceeds your account value. Without this allowance, you would only be able to buy or sell tickets of $1,000 at a time.

How do you calculate the margin requirement?

Well, the required margin will be a percentage of the size of the trade that you want to open and is calculated according to the base currency of the pair that you want to trade. Using the equation below you can work out how much margin you’ll need for each trade.

Required Margin = Position Size X Margin Requirement

For example:
You’d like to open a mini lot (10,000 base units) in USDJPY. How much margin do you need to open the position?

As the USD is the base currency, the position size (or notional value) is 10,000 USD. Your broker has given you a Margin Requirement of 5%.

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