Put simply, margin serves as collateral to cover any losses that you might incur. Since no underlying product is actually being purchased or sold for delivery, the only requirement is having funds in your FX account to maintain your margin.
Essentially when you trade on margin you are using a free short-term credit allowance from AxiTrader. This short-term credit allowance is used to purchase an amount of currency that greatly exceeds your account value.
You have an account with $10,000 with AxiTrader. You trade ticket sizes of 1,000,000 AUD/USD. This equates to a margin ratio of 1% ($10,000 is 1% of $1,000,000). How can you trade 100 times the amount of money you have at your disposal? The answer is that AxiTrader temporarily gives you the necessary credit to make the transaction you are interested in making. Without margin, you would only be able to buy or sell tickets of $10,000 at a time. On standard accounts AxiTrader applies a minimum 1% margin.
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.
Customers who hold FX positions may become liable to pay margin as detailed in our Client Agreement, and also our Slippage Policy. All FX positions have an initial margin and you are required to keep this over and above any unrealised losses. Margin calls can be made at any time and it is therefore important for you to familiarise yourself with our Client Agreement especially the section relating to margin calls. As a general rule, if your free margin % on the platform reaches 90%, you will officially be in ‘Margin Call’. If your positions continue to move against you, and the free margin percentage reaches 20% of your free margin, your current positions will be automatically closed to avoid a situation where your account balance may go into deficit. Be aware that it is your responsibility, not AxiTrader’s, to monitor your positions and make any margin payments as they become due.
MetaTrader 4, our Forex trading platform, has been designed to effectively monitor and allow you to control risk exposure in real time. Based on each client’s margin requirement, the platform calculates both the funds needed to retain current open FX positions and the trading resources available for entering into new positions or for adding to existing open FX positions.
As stated above, if the equity in your account drops below the margin required to maintain your open positions, we may close all open positions. Once usable margin reaches zero, a margin call will ensue, and all open positions may be closed by us. This limits your risk to usable margin.
Although many other brokers may offer less than $200 accounts with 400:1 leverage or more, our view is that at this level you should carefully consider whether FX trading is right for you; your trading and money management plan; and attitude to risk/reward. In this scenario we would suggest opening a practice trading (or demo) account to better assess if Forex trading is right for you. AxiTrader will allow you to use an unlimited demo account (not bound by the usual 30 day expiry) if you open a live account with more than $200.