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04/03/2010: Dukascopy :: Margin Requirements

Transactions conducted in the SWFX marketplace may be done on margin trading basis, enabling a client to leverage a deposit for access to bigger liquidity from invested funds and amplified market effect. The multi-currency exposure of the account is limited by the Total Trading Line which is calculated in the base currency, by multiplying the Equity of the account by the leverage agreed with Dukascopy. During regular trading hours, the total Free Trading Line can be up to a 100 times the amount of the equity. The initial leverage of the account can be adjusted to different levels (e.g. 1:50 or 1:20) which are predefined by Dukascopy and the client. The necessary margin to run an exposure is computed each time at trade initiation, and the amount of Free Trading Line 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 (Suisse) 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 corresponding 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 table below lists the minimum margins required to trade a contract of 100'000 for different currency pairs if the account's leverage is set to 1:100.

  Leverage 1:100*" Over-the-weekend leverage 1:30**
Currency pair Contract, mil In base currency In USD In base currency In USD
AUD/JPY 0.1 1000 AUD 901 USD 3333 AUD 3003 USD
AUD/NZD 0.1 1000 AUD 901 USD 3333 AUD 3003 USD
AUD/USD 0.1 1000 AUD 901 USD 3333 AUD 3003 USD
CAD/JPY 0.1 1000 CAD 964 USD 3333 CAD 3213 USD
CHF/JPY 0.1 1000 CHF 925 USD 3333 CHF 3082 USD
EUR/AUD 0.1 1000 EUR 1353 USD 3333 EUR 4510 USD
EUR/CAD 0.1 1000 EUR 1353 USD 3333 EUR 4510 USD
EUR/CHF 0.1 1000 EUR 1353 USD 3333 EUR 4510 USD
EUR/GBP 0.1 1000 EUR 1353 USD 3333 EUR 4510 USD
EUR/JPY 0.1 1000 EUR 1353 USD 3333 EUR 4510 USD
EUR/NOK 0.1 1000 EUR 1353 USD 3333 EUR 4510 USD
EUR/SEK 0.1 1000 EUR 1353 USD 3333 EUR 4510 USD
EUR/USD 0.1 1000 EUR 1353 USD 3333 EUR 4510 USD
GBP/CHF 0.1 1000 GBP 1495 USD 3333 GBP 4981 USD
GBP/JPY 0.1 1000 GBP 1495 USD 3333 GBP 4981 USD
GBP/USD 0.1 1000 GBP 1495 USD 3333 GBP 4981 USD
NZD/USD 0.1 1000 NZD 697 USD 3333 NZD 2320 USD
USD/CAD 0.1 1000 USD 1000 USD 3333 USD 3333 USD
USD/CHF 0.1 1000 USD 1000 USD 3333 USD 3333 USD
USD/JPY 0.1 1000 USD 1000 USD 3333 USD 3333 USD
USD/NOK 0.1 1000 USD 1000 USD 3333 USD 3333 USD
USD/SEK 0.1 1000 USD 1000 USD 3333 USD 3333 USD

* 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.

Use of leverage

In order to facilitate the perception of used margin and the extent of an exposure, Dukascopy has created a special real-time percentage indicator - use of leverage. The use of leverage has two objectives: 1) to show how much of Free Trading Line is used to run an exposure and 2) to run the margin call and margin cut procedure on the account. The equation for the use of leverage is as follows:

  Used Free Trading Line  
Use of leverage =                                 x 100
  Total Free Trading Line  

*Note that the total Free Trading Line equals to equity multiplied by leverage

Example:
Exposure on the account = USD 1,000,000
Profit and losses = 0
Leverage authorized for the account = 1:20
Equity = USD 100,000
Total Trading Line = Equity X Leverage = USD 100,000 X 20 = USD 2,000,000
Use of leverage = Used Trading Line / Total Trading Line = 1,000,000 / 2,000,000 = 50%

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 close the existing unhedged positions or hedge current positions in order to reduce exposure. 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 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%.

 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 typically set to 1:30. 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 5 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]. As a result of leverage contraction, the use of leverage can increase if the account has 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 margin trading 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 ECN Accounts, please write us: info@dukascopy.com, call us: +41 (0) 22 799 4888 or alternatively ask for a call-back.



 
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