Margin requirements are never as simple as assuming that 1.5 standard lots can be traded with a 50k account just because 1 lot is $100,000 and the leverage available is 3x
Calculating Margin Requirements with BluFX Accounts
Margin available and margin required are 2 different things because the total size position a trader can put on will depend on the currency pair and its ‘cost’ to trade. The ‘cost’ of a pair will depend on its volatility, the exchange rate of the currency and the risk the pair present to the broker. The risk to the broker is primarily customers losing more money than they have in their accounts. BluFX and its traders trade through STP (passes on the trades to the big banks) FCA broker and are therefore subject to the same risk and margin parameters as professional customers.
Or put simply, trading for BluFX at their broker requires a professional approach to calculating risk and lot size. Or put in another way, the retail brokers that offer fixed spreads, guaranteed fills and simplified and binary 'profit per pip' outcomes are not passing the trades to the real FX market. They are merely using the prices as a basis to allow you to place highly leveraged bets against themselves. You lose they gain, your trades are never exposed to the real FX market of liquidity providers, slippage, risk and variable spreads.
So how do FCA brokers that serve professional traders and require a minimum deposit of $50,000 work?
If a customer has 100k and the currency pair has an exchange rate of 1 and a margin requirement of 100K, then he will only be able to trade 1 lot which is $100,000. But only if the broker allows customers to commit 100% of the funds they have available – the available margin. If we discount the exchange rate factor, most brokers have a required margin amount of a percentage less than 100% of available margin, and this percentage can vary according to the pair and the prevailing conditions. If a broker has 80% threshold it means they will stop a trader when he still has 20% in his account to provide them with a buffer if the worst comes to the worst according to their risk expectation for that pair.
So they protect themselves with a buffer against the possibility of the customer losing over 100% of his margin and then having to chase the customer for more money. So they set their risk software to block trading unless available margin is above 100% of required margin, for example 120% or 110% or 130% according to their own risk models.
This added available percentage over the required margin dictates the trigger to block the trade/order. This vital information can be found by right clicking the pair in the 'market watch' window and selecting 'specification' and looking at the 'margin percentage' variable. (Please note that the following examples are indicative and therefore will likely not reflect actual prevailing situation when you read this)
For example to trade 1 lot of USDCHF you would need to have available 3 times the margin requirement for 100,000 units.
To trade 1 lot of EURUSD you would need to have available 1.2 times the margin requirement for 100,000 units.
This percentage varies for different brokers and different pairs but it is never (exchange rate discounted) 100%. Therefore someone with a 50k balance should never be able to put on 150k position with 3x leverage in a pair with exchange rate of 1. They will be able to do this if the exchange rate between the pair is not 1.
This is key to understanding why some orders are rejected and why we should never ever assume that a ‘standard lot’ of $100,000 or $80,000 is standard for margin for different pairs where the exchange rate is either below or above 1.
Questions relating to margin etc are a topic that is complex and needs careful study and understanding for customers who want to be exact in their position sizing and money management strategies.
Calculating Margin Requirements – A simple calculator
Margin level (%) is calculated as follows: Equity / Margin X 100.
Margin level gives us the available margin. Depending on the pair and the amount in the account a calculation then has to be made that considers;
Required Margin = Trade Size / Leverage * account currency exchange rate (if different from the base currency of the pair traded)
Allowed Pairs and Position Size Guide
BluFX Lite $25,000: BluFX Islamic and Pro $50,000
The following are typical maximum open positions allowed on each subscription package. These limits will vary depending on your actual account balance and current exchange rates.
Only the pairs listed below may be traded.
|Currency Pair||How much margin required for 0.5 lot position||Maximum position per account balance||Maximum dollars per pip|
|XAUUSD||30828||0.20||0.40||$ 2.00||$ 4.00|
|EURAUD||30021||0.42||0.83||$ 4.16||$ 8.33|
|EURNZD||30021||0.42||0.83||$ 4.16||$ 8.33|
|GBPAUD||33644||0.37||0.74||$ 3.72||$ 7.43|
|GBPNZD||33644||0.37||0.74||$ 3.72||$ 7.43|
MT4 spreads are based on leading institution price feeds
Spreads on currency pairs available will vary and are generally tightest during liquid times and widest at times of high volatility or uncertainty. This variability begins with the institutions that provide liquidity and trade matching for BluFX traders.
MT4 works on 5 decimal places - EURUSD quote of 1.19813/1.19826, meaning a spread of 1.3 pips.
Standard Lot Sizes and Maximum Order Cap
1 lot volume = 100,000 of the first named currency
So trading 1 lot of EURUSD is to trade €100,000 of USD.
Some brokers cap individual limit orders for risk purposes. At BluFX the individual order size is capped at 0.5 lots. This is not a position limit. Multiple orders of the maximum 0.5 lot order can be placed simultaneously and are limited by margin. If margin available allows a position of 1.8 lots, then the position must be entered with 3 x 0.5 orders and 1 x 0.3 order.
Promoted traders (Stage 2 +) have no order cap restrictions.
Spread Costs & Calculations
Spread cost = (Spread X Position Size)/10,000*
We can look at the market watch window to see the spread, for example EURUSD spread = 1.3 Position size = 1 lot (100,000 units)
Spread Cost for 1 lot = (1.3 x 100,000) / 10.000 = $13.00
* 10,000 Factor = this is because the spread is measured on the 4th Decimal Point. This value always remains constant.
The spread cost is always calculated in the second name currency of the currency pair quoted. In the example above, the spread cost is quoted in USD. As the spread or position size varies, the spread cost will vary.
Swap Rate and Fee Calculations
The swap fee is charged for carrying a position overnight. A forex swap is the difference in interest rates between the two currencies of the traded pair. The calculation will depend on whether the position is long or short.
We can find the swap rate for long and short positions by right clicking the pair in market Watch window and selecting ‘Specifications’
The calculation is then as follows;
Swap = (Pip Value * Swap Rate * Number of Nights) / 10
For example to carry 1 lot of EUR/USD (long)
- 1 lot = 100,000
- Pip Value = $10
- Swap Rate = 0.64
- Number of Nights = 1
Swap fee = (10 * 0.64 * 1) / 10 = $0.64
Risk and Trader Guidelines
All traders are required to read, understand and follow the few guidelines. The risk is managed by algos with human supervision. Risk is basically insurance against loss. That insurance costs a certain premium and is generally applied by the system based on assumptions and actual behavioural data about every single trader,currency and trade. Each trader is required to manually manage and close positions and to remove limit orders to avoid breaking the guidelines. Individual breaches of the guidelines create non factored in and therefore expensive 'surprises' for the risk system and are deemed to be unauthorized activities. Therefore accounts with a pattern of this behaviour will invalidate targets for growth and withdrawal and will be closed without warning by the system.
It's worth familiarising oneself with the following parameters for each pair to be traded and to adequately study and understand the formula;
- Contract Size
- Margin Percentage
- Account Currency Exchange Rate
- Account Balance
- Swap Rate
Frequently asked questions have the following answers;
- BluFX offer 1: 3 Leverage.
- Max Order Size = 0.5 and Multiple Orders may be placed.
- To place a POSITION of 1 standard lot, 2 ORDERS of 0.5 must be placed
- Max Position Size depends on account size and which pair.
- Use the above Margin Calculator to work out how many lots you can trade.
- CHF pairs require up to 3 times the margin of EUR pairs.
- Traders must manage and close positions with care to avoid 'unauthorized trader' status.
- CHF, USD, GBP, EUR, JPY, CAD, AUD, NZD, XAUUSD may be traded in any combination as pairs.
- Non of the following currencies may be traded: XAG, SEK, CHN, HKD, MXN, NOK, DILS, ZAR, TRY.
- Stop Loss, Take Profit and Limit orders may be used. EAs may not be used
Do you want to be a Pro? BluFX Project parameters are set by the risk system to achieve the objectives - developing fund managers valued by our investors - that have acquired the skills required to trade professionally - the only qualification therefore is progress through the stages. If you can progress, then you will have developed from high leverage hit or miss to professional returner of profit on capital with a low risk of ruin.