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Margin Trading

What is Margin/Leverage?

All products offered by Alpha Capital International are traded on (leverage) margin. Leverage effectively allows clients to trade a notional amount that is much bigger that their initial cash deposit. This permits clients to exploit investment opportunities without having to deposit the full amount of capital as they would have done in the cash market to take an equal size position.

Clearly, leverage and margin are the two sides of the same coin. A forex position at 1% margin means in fact that the investor needs to only deposit 1% of the total purchase cost of that deal to open that position.

Example:

Investors purchases 5 EURUSD contracts (5 lots long EUR) at $1.3675 (position EUR 500,000 or USD 683,750), but only deposit 1%, or EUR 5,000 towards this transaction. This is attractive to people who do not want to hold the position for the long term, and provides for leverage when trading. In this case the client has only paid EUR 5,000, if the EUR goes up 50 bps the next day, and they sell, they will have made a USD 2,500 (EUR 1,821) profit on a EUR 5,000 investment, or 36.5% return (less any possible roll-over costs). If they had been cash buyers of the EURUSD for EUR 5,000 they would have made USD 25 (EUR 18.21) or 0.365% return. A 1% margin provides a trading leverage of 100 times the initial deposit or 1.100.

Initial Margin

Initial Margin is the initial deposit required to open a position on an instrument with us once you have opened your account. The minimum account opening Margin depends on the type of account – Minimum Account Size.

Variation Margin

Variation Margin is the difference in margin requirement once the investor has opened a position, and provides for trading profits and losses.

Margin Requirements

The default margin requirement offered by Alpha Capital International across all products is 1:100.

Margin Calls and Liquidation

If the market moves against the investor’s position and the Equity Balance falls below the Initial Margin requirement the client has the option to:

  • Close one or more of the open position(s), in order to reduce the Initial Margin requirement to the required level;
  • Place a ‘stop loss’ order with us to try and avoid a deficit balance on your account; and/or,
  • Remit further funds to the account as deposit in order to maintain the Initial Margin requirements.

Investors must maintain the margins listed in an account at all times. If the funds in the account fall below this margin, investors will be subject to a margin call to either deposit more funds to cover positions or close positions.

Investors have to monitor their account since if the funds fall below the margin the system will automatically close/liquidate the position.

Equity Balances

The equity (or balance) on your account will fluctuate according to the money the investor has deposited in the account.

During the trading day the investor’s account balance(s), including all open positions, are valued against the prevailing market bid or offer rate (depending if the position is long or short). Therefore the equity balance is calculated in real time and in-line with market movements.

This equity balance is used to assess the investor’s available margin against current positions, and potential new positions the investor may wish to take. The balance is used to establish if there is a requirement for additional margin deposits on the account.

Once a position is opened both Initial Margin and Variation Margin requirements must always be maintained for the open position(s). It is the responsibility of the investor to ensure that the account is sufficiently margined at all times, especially during volatile trading periods.

Definitions/Calculations

Cash Balance

Cash Balance = Balance

This is the initial investment put into account. Any subsequent deposits will be shown in the Balance.

Equity

Equity = Balance + Trading P/L (floating) – (commissions unrealized)

Margin

Margin = Equity – Free Margin

Free Margin

Free Margin = Equity –Margin

Margin Level

Margin Level= Equity / Margin

Available for Withdrawal

Available for Withdrawal = Free Margin – Credit

This is for illustration purposes only since Alpha Capital International does not provide Credit.

Available for Trading

Avail. For Trading = Free Margin