BluFX Margin Explained

   BluFX Margin

 

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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 a broker and are therefore subject to the same risk and therefore margin parameters as other customers.

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.

For example to trade 1 lot of USDCHF you would need to have available 3 times the margin requirement for 100,000 units.

-CHFCapture.png

To trade 1 lot of EURUSD you would need to have available 1.2 times the margin requirement for 100,000 units.

EURCapture.png

 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 Basic $25,000:  BluFX Standard 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
$25000 $50000 $25000 $50000
EURUSD 19250 0.65 1.30  $   6.49  $12.99
EURGBP 19250 0.65 1.30  $   6.49  $12.99
EURJPY 19250 0.65 1.30  $   6.49  $12.99
EURCAD 19250 0.65 1.30  $   6.49  $12.99
EURCHF 19250 0.65 1.30  $   6.49  $12.99
USDJPY 16700 0.75 1.50  $   7.49  $14.97
USDCAD 16700 0.75 1.50  $   7.49  $14.97
USDCHF 16700 0.75 1.50  $   7.49  $14.97
CHFJPY 16700 0.75 1.50  $   7.49  $14.97
CADCHF 12500 1.00 2.00  $ 10.00  $20.00
CADJPY 12500 1.00 2.00  $ 10.00  $20.00
GBPUSD 22000 0.57 1.14  $   5.68  $11.36
GBPJPY 22000 0.57 1.14  $   5.68  $11.36
GBPCAD 22000 0.57 1.14  $   5.68  $11.36
GBPCHF 22000 0.57 1.14  $   5.68  $11.36
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
AUDUSD 18500 0.68 1.35  $   6.76  $13.51
AUDNZD 19151 0.65 1.31  $   6.53  $13.05
AUDCAD 19151 0.65 1.31  $   6.53  $13.05
AUDCHF 19151 0.65 1.31  $   6.53  $13.05
AUDJPY 19151 0.65 1.31  $   6.53  $13.05
NZDUSD 17172 0.73 1.46  $   7.28  $14.56
NZDJPY 17598 0.71 1.42  $   7.10  $14.21
NZDCHF 17598 0.71 1.42  $   7.10  $14.21

  

 Spread Dynamics 

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. 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 problems for the risk system and are deemed to be unauthorized activities and will invalidate targets for growth and withdrawal.

 

 Summary 

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 
  • Leverage 
  • 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 to avoid 'unauthorized trader' status. 
  • CHF, USD, GBP, EUR, JPY, CAD, AUD, NZD may be traded in any combination as pairs.  XAUUSD is also available.
  • Stop Loss, Take Profit and Limit orders may be used. EAs may not be used 

     

April 12, 2018