One of the issues I constantly stumble upon is traders (and even educators…) trying to figure out how margin is calculated. We had a guest post by Currensee’s John Forman who amongst other things gave an example of margin calculation as well as pointing at one of the educator’s who actually made a calculation error.
Interbank FX has also recently made a post explaining how to calculate a margin and it is quite simple:
For pairs beginning with USD (USD/CAD, USD/CHF, USD/JPY, etc.): Contract size (in the base currency)/leverage= margin required (in the base currency)
Example for Mini FX Accounts:
A mini account has a contract size of 10,000 units of the base currency (the first currency listed in the pairs name) per 1 mini lot
$10,000 USD/100 [1:100 leverage]=$100 USD to place a 1 mini lot trade
Example for Standard FX Accounts:
A standard account has a contract size of 100,000 units of the base currency (the first currency listed in the pairs name) per 1 standard lot.
$100,000 USD/100 [1:100 leverage]= $1,000 USD margin required to place a 1 standard lot trade
For all other pairs beginning with something other than USD (EUR/USD, GBP/USD, AUD/NZD, etc)
By using the formula above (Contract size (in the base currency)/leverage= margin required (in the base currency)) for calculating margin we get the margin required in amounts of the base currency. Because your account with IBFX is held in USD we have to convert that base currency margin amount into USD in order to get the amount of margin required in USD. To accomplish that we simply multiply the base currency amount by the current price of the pair starting with that base currency and ending with the USD. So, for contracts of the EUR/JPY, or the EUR/CHF, we multiply the EUR base currency margin requirement by the current price of the EURUSD. This final number tells us the margin requirement in USD.
Example for Mini Accounts:
A mini account has a contract size of 10,000 units of the base currency per 1 mini lot
10,000 EUR/100 [1:100 leverage]=100 EUR x 1.3789 [current price of the EUR/USD]= $137.89 USD margin required to place a 1 mini lot trade
Example for Standard Accounts:
A standard account has a contract size of 100,000 units of the base currency per 1 standard lot.
100,000 GBP/100 [1:100 leverage]= 1,000 GBP x 1.5658 [current price of the GBP/USD]= $1565.80 USD margin required to place a 1 standard lot trade
If you would like to calculate the margin required to place a trade for more or less than one lot, simply multiply the USD margin requirement by the desired lot size.
