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Margin Requirements
Transactions conducted in the SWFX marketplace may be done on a margin trading basis, enabling a client to execute trades larger than the deposit, amplifying price movement effect. The multi-currency exposure of the account is limited by the total trading line which is calculated by multiplying the Equity of the account by the leverage agreed with Dukascopy Bank SA. By default the initial leverage for regular trading hours is set to 1:100, which allows to increase exposure up to a 100 times the amount of the equity, but can be set up to 1:200 by request (restrictions may apply).
Attention: ECN accounts with the leverage 1:300 and minimum equity level 20 EUR are available with Dukascopy Europe. (Read more)
The initial leverage of the account can be adjusted to different levels (e.g. 1:50 or 1:20) which are predefined by Dukascopy Bank SA and the client. The margin necessary to increase the exposure is computed at trade initiation, and the amount of Free and Used Margin is updated in real time on the trading platform.
Minimum margin requirements
In order to protect clients from incurring liability above their equity and protect Dukascopy Bank SA from associated risks, the following minimum margin policy applies: The minimum equity requirement for the self-trading account is 100 CHF. For accounts with different base currency the minimum amount of equity is calculated at the exchange rate of the latest settlement. All open positions may be closed and the account may be blocked should the equity on the account reach the minimum margin requirement.
The minimum margin required to open a position depends on the desired leverage, currency pair and current market prices.
* The minimum margin requirements will differ if the initial leverage is changed
** See section "Over-the-weekend leverage" for additional information
*** If equity for the self trade account is less than CHF 100 or equivalent in foreign currency, the account may be blocked by Dukascopy Bank.
Use of leverage
The Use of Leverage is an indicator showing how much of the collateral is currently used by the exposure on the trading account. It is displayed in percentage in real-time and calculated as follows:
| Used Margin | ||
| Use of leverage = | x 100 | |
| Equity |
*Note that the Used Margin equals to the exposure divided by leverage
Example:
Position of 1 mio EURUSD at 1.2000
Exposure on the account = USD 1,200,000
Profit and losses = 0
Leverage authorized for the account = 1:20
Equity = USD 100,000
Used Margin = Exposure on the account / Leverage = USD 1,200,000 / 20 = USD 60,000
Use of leverage = Used Margin / Equity = 60,000 / 100,000 = 60%
Margin call and margin cut policy
Margin call (Use of leverage >100%) means a situation where the margin requirements do not allow the client to increase exposure on his account. The client may only execute trades to reduce exposure, by closing or hedging the existing net positions. Despite the margin call level being reached, the positions will not be closed automatically. The automated system will cancel all placed bid/offer orders that can increase the exposure.
Margin cut or cut-off level (Use of leverage ≥ 200%) - if the Use of Leverage reaches or exceeds 200%, Dukascopy Bank has the right (but not the obligation) to fully or partially reduce the client's exposure by closing existing positions and/or by opening new positions in the opposite direction. Usually the system automatically reduces exposure so that the Use of Leverage is brought to approximately 100%. However, traders can select to fully close all open positions in case of a margin cut.
| Use of leverage | Description |
|---|---|
| 0% | No exposure |
| <100% | Normal status |
| ≥100% | Margin call: trader is not able to increase exposure on the account if the Use of leverage is more than 100% |
| ≥200% | Margin cut: typically system will open hedging positions in the opposite direction for all positions which contribute to exposure on the account. The Use of leverage will be decreased to 100% or less. |
Over-the-weekend leverage
Maximum available leverage for the weekends and other market closure days is set to 1:30 (1:60 for accounts with maximum leverage 1:200). The purpose of this policy is to mitigate risks caused by potential price gaps during market closure, which may seriously threaten invested funds.
Standard algorithm: Over-the-weekend trading conditions are effective starting 3-4 hours before each market closure (weekend, holidays, etc) until re-opening of the market. For usual Friday night closure, over-the-weekend conditions would become effective at 18:00 [GMT], which may cause the Use Of Leverage to increase if there is an net exposure. Regardless of the over-the-weekend margin conditions, the general execution mechanisms of the margin call and margin cut remain the same. That is, if the amount of equity on the account is not sufficient to support existing positions with a leverage of 1:30, the margin cut procedure will be applied to the account (see paragraph Margin Call and Margin Cut).
Risk disclosure
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. It is highly recommended to maintain the Use of Leverage at normal levels. The client must always keep in mind that leverage increases potential loss, as well as potential profit, and invested funds can quickly suffer losses in situations where the market prices exhibit strong volatility, potentially creating an adverse environment for the highly leveraged participant. The client shall be solely responsible for maintaining sufficient margin in relation to the existing positions.
To learn more about Dukascopy Bank SA ECN Accounts, please write us: info@dukascopy.com, call us:
