frequently asked questions
- What is margin?
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Margin can be thought of as a good faith deposit required to maintain open positions. This is not a fee or a transaction cost, it is simply a portion of your account equity set aside and allocated as a margin deposit. Margin requirements (per 10K lot) at FXCM are determined by taking a percentage of the notional trade size plus a small cushion. A cushion is added to help alleviate daily/weekly fluctuations.
- Why trade on margin?
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Trading on Margin (Trading with Leverage*) is a common attraction of the forex market. It allows you to open trades that are larger than the capital in your account.
Example
In the example above, $1,000,000 have been purchased through a long USD/JPY position with a $50,000 account balance (20:1* Leverage).
Trading on margin can both positively and negatively affect your trading experience as both profits and losses can be dramatically amplified.
- What leverage does FXCM offer?
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FXCM offers flexible leverage on its forex trading accounts. The maximum amount of leverage available is approximately 100:1*. The high degree of available leverage is a popular attraction for many traders to the forex market, however most FXCM traders use the default leverage which is currently 50:1 (determined by the default margin settings). But the amount of leverage utilized in your trading is up to you.
- Can I have a practice account with the maximum leverage set at approximately 1%?
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Yes you can. Some traders choose to practice trading with a higher leverage setting.
To create a practice demo account with a 1% margin setting (100:1 leverage), complete the demo registration form for a specialized demo.
- Why does FXCM encourage lower leverage?
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When you use excessive leverage, a few losing trades can quickly offset many winning trades. To clearly see how this can happen, consider the following example.
Scenario: Trader A buys 50 lots of USD/JPY while Trader B buys 5 lots of USD/JPY.
Questions: What happens to Trader A and Trader B account equity when the USD/JPY price falls 100 pips against them?
Answer: Trader A loses 41.5% and Trader B loses 4.15% of their account equity.
Example
|
TRADER A |
TRADER B |
| Account Equity |
$10,000 |
$10,000 |
| Notional Trade Size |
$500,000 (Buys 50, 10K lots) |
$50,000 (Buys 5, 10K lots) |
| Leverage Used |
50:1 (50 times) |
5:1 (5 times) |
| 100 Pip Loss in Dollars |
-$4,150 |
-$415 |
| % Loss of Equity |
41.5% |
4.15% |
| % of Equity Remaining |
58.5% |
95.85% |
By using lower leverage, Trader B drastically reduces the dollar drawdown of a 100 pip loss.
- How can you decrease your margin requirements?
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You can request to decrease your margin settings at any time through your FXCM Account Profile at www.myfxcm.com and choose from the available listed margin settings. Please note that FXCM LLC margin requirements are set as a percentage of the notional trade size plus a small cushion. The default margin requirement allowed for Standard 10K accounts with FXCM US is 2%. Margin changes may take as long as one business day to be reflected in your account.
- Where can I view FXCM's up-to-date margin requirements?
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Up-to-date margin requirements are listed by currency pair in the MMR column of the "Simple Dealing Rates" window within the platform.
- Is there a debit balance risk? Can I lose more money than I deposit?
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Not with FXCM. We guarantee you can never pay a debit balance as a result of trading.
One of the greatest concerns traders have about leverage is that a sizable loss could result in owing money to their broker. At FXCM, your maximum risk of loss is limited by the amount in your account. All accounts are tracked by our "Margin Watcher" feature. With the Margin Watcher feature, if account equity falls below margin requirements, the FXCM Trading Station will trigger an order to close all open positions.
* Leverage is a double-edged sword, and can dramatically amplify your profits. It can also just as dramatically amplify your losses. Trading foreign exchange with any level of leverage may not be suitable for all investors.
