Margin and Leverage question

This is a discussion on Margin and Leverage question within the General Trading Chat forums, part of the Reception category; Hi there, Could someone please explain to me how this works; If you I fund an account for US$4000, and ...

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Old Jan 12, 2017, 2:17pm   #1
Joined Jun 2011
Margin and Leverage question

Hi there,
Could someone please explain to me how this works; If you I fund an account for US$4000, and the leverage is 1:100 i.e, 1%. When the free margin for open positions slips to less 50% of 1%, the highest open position will be stopped out until the free increases to 50% of 1%. Could someone explain to me in layman terms how that works please and how much margin would be needed with an open trade?


Also, say I fund an ac for US$4000, for 1:300% leverage i.e.0.33%, is that right? When the free margin for open positions slips to less 100% of 0.33%, the highest open position will be stopped out until the free margin increases to 100% of 0.33%.. Could someone please tell me how that works?

Thank you.
moyes is offline   Reply With Quote
Old Jan 15, 2017, 12:03am   #2
Joined Jan 2006
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Originally Posted by moyes View Post
Hi there,
Could someone please explain to me how this works; If you I fund an account for US$4000, and the leverage is 1:100 i.e, 1%. When the free margin for open positions slips to less 50% of 1%, the highest open position will be stopped out until the free increases to 50% of 1%. Could someone explain to me in layman terms how that works please and how much margin would be needed with an open trade?


Also, say I fund an ac for US$4000, for 1:300% leverage i.e.0.33%, is that right? When the free margin for open positions slips to less 100% of 0.33%, the highest open position will be stopped out until the free margin increases to 100% of 0.33%.. Could someone please tell me how that works?

Thank you.
Hi Moyes! How are things in New Zealand [I left NZ for "1 year" in 2001!]

I presume your question stems from the FCA's proposal for changing leverage on CFD's?

Unfortunately, I didn't fully understand your question. Did you mean what happens if the leverage on your accounts was reduced from 100:1 to 50:1? And how would this impact on any open positions?

Certainly if as a result of the leveraging change, you no longer have sufficient margin in the account, then your broker will close the position at market. However, the broker will likely give you plenty of advance warning that this is about to happen. Additionally, your broker should be able to explain the practicalities in detail if you give them a call. I am sure this has already turned into a FAQ.

Hope that helps a little bit.

O-G
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Old Jan 15, 2017, 3:09pm   #3
Joined Nov 2016
If you then use 100:1 leverage on $4,000, that means you are taking on a position of value $400,000. Now if that position moves against you 1%, you will have lost $400,000 * 0.01 = $4,000. But that could be everything in your account, so the broker needs to protect themselves as the market can move quickly, so at some point before that 1% loss has been realised, they will reduce/close your position. Where they start doing that can depend on the broker. So they might wait for you to lose 0.5% and then start reducing.

There is the concept of initial margin and variation margin which you might want to read about.
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