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Margins & Leverage | AxiTrader

Margins & Leverage

 
Customers holding open positions must maintain minimum margin requirements as detailed in our Client Agreement. All positions have an initial margin requirement and you are required to keep an Account Balance over and above that requirement and any unrealised losses. Margin calls can be made at short notice and can be substantial. It is therefore important for you to familiarise yourself with our Client Agreement., especially the section relating to margin calls. The Product Disclosure Statement describes the Margin Requirements and a description of the risks of dealing in leveraged products.

Be aware that it is the Client’s responsibility, not AxiTrader’s, to monitor positions and make any margin payments as they become due.

Clients are warned that losses are not limited to their account balance and that they must not rely on AxiTrader closing out a position to prevent losses.
 

What is Margin Trading?

Put simply, Margin trading allows you to take a position of much higher value than the monies deposited in your account. Your account balance is security against an adverse movement in the market.

Margin means leverage and leverage means there is potential to lose more than the monies you have deposited in your AxiTrader account.

Margin comes in a number of different forms. Margin applies to all AxiTrader instruments and is made up of Initial Margin and Variation Margin.

Initial Margin is the minimum account balance required to open a position. Variation Margin is the unrealised profits or losses on open positions or transactions. Your total margin requirement is the sum of these two amounts and you must maintain at least this amount in your AxiTrader account at all times.

If the market moves against you and your account balance falls below your total margin requirement you have the option to:

  • close one or more of your open position(s), in order to reduce your Initial Margin; and/or
  • remit further funds to your Account as deposit in order to maintain the position.

Let’s take the following example:

You have an account with $10,000 with AxiTrader. At 1% margin, you may open positions to a total value of $1,000,000.$10,000 ÷0.01 =$1,000,000). Buying A$500,000 (or 5 Standard Contracts) against the USD at an exchange rate of 0.800
Initial Margin Requirement = 5 Lots X (Contract Size X 0.01) = A$5,000
If the Australian Dollar depreciates in value against the USD to 0.7950 then Variation Margin (Unrealised Losses) are USD$2,500 (A$3,145).
Total Margin Requirement = Initial Margin + Variation Margin = A$5,000 + A$3,145 = A$8,145
The Margin Ratio = Account Equity ÷ Margin Requirement = 137%

This margin facility allows you to potentially make large profits from a relatively small initial investment. But it must be pointed out that any losses are equally multiplied.
 

Monitoring Margin Requirement and Liquidation

MetaTrader 4, our trading platform, allows you to monitor and control risk exposure in real time. Based on each client’s margin requirement, the platform calculates both the funds needed to retain current open positions and the trading resources available for entering into new positions or for adding to existing open positions.

From our example above:

If positions remain open and the AUD falls further in value AxiTrader may exercise its right to close some or all of the positions (Liquidation). The Liquidation Level is where the Margin Ratio falls below a certain level. It is currently set at 20% but may vary.

In our example, when the AUD/USD Exchange Rate is 0.7920 the Margin Ratio is:
Account Equity ÷ Margin Requirement = Equity (A$10,000 – A$5,051) ÷ A$5,000 = 99%
As the Margin Ratio is less than 100% the account is in Margin Call.

If the Australian Dollar continues to fall in value against the US Dollar to an exchange rate of 0.7858 then
Unrealised Losses will rise to US$7,100 (A$9,035) and Account Equity will have fallen to A$965.

The Margin Ratio will be A$965 ÷A$5,000 = 19% and Liquidation will be triggered.

The positions are liable to be closed by AxiTrader.
 

IMPORTANT

Liquidation is not guaranteed to protect against a negative balance.
Clients are warned that losses are not limited to their account balance and that they must not rely on AxiTrader closing out a position to prevent losses. Markets can gap, systems can fail or other circumstances may prevent liquidation.

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