The Basics of Margin Trading
The following formula is used to calculate the spread on the Quadcode Markets platform:
EUR/USD Ask: 1.13462 Bid: 1.13455
Spread: 1.13462 - 1.13455 = 0.00007
Trade size: 200.000 units of the base currency (=200,000 EUR)
EUR/USD cost of spread = (1.13462 - 1.13455) × 200,000 = 14 USD
Swaps arise from the difference in interest rates of currencies plus the broker's administrative fee. In forex trading, you borrow one currency in order to buy another. A swap depends on whether you buy a currency with a higher or lower interest rate compared to that of the currency you borrow. Swaps can be both positive and negative.
If you buy a currency with a higher interest rate than the one you are borrowing, you will get a positive swap. Let's consider the following example.
The American interest rate is 1.75%.
Australia's interest rate is 0.75%.
The administrative fee is 0.25%.
If you open a long position on the USD/AUD pair, a swap of 0.75% will be credited to your account, as the currency you buy (USD) has a higher interest rate than the currency you borrow (AUD).
If you open a short position on the same currency pair, a swap of 1.25% will be debited from your account, because the currency you borrow (USD) has a higher interest rate than the currency you buy (AUD).
To calculate a margin on the Quadcode Markets platform, use the following formula:
You intend to buy 1,000 units of the EUR/USD currency pair with a 1:30 leverage. The margin required to open this trading position is 3.33 EUR. Check out the detailed calculations below:
Currency pair: EUR/USD
Trade size: 1000 units of the base currency
Margin = 1000 / 30 = 3.33 EUR
Let's assume you have deposited $1,000 into your account and are using a 1:30 leverage. In this case, your buying power will increase by 30 times, to $30,000, which means you can place a trade with a value of $30,000.
Check out maximum leverage and margin requirements on the Quadcode Markets platform.
Example 1: Base Currency = Account Currency
Let's say your account currency is USD and you are trading the USD/JPY currency pair. Conversion does not apply to the margin calculation because the base currency (USD) is the same as the account currency (USD). Conversion is applied when calculating the payout: it is first calculated in JPY, the quote currency, and then converted to USD, the account currency.
Example 2: Quote Currency = Account Currency
Let's say your account currency is USD and you are trading the EUR/USD currency pair. Conversion will be applied to the margin calculation because the base currency (EUR) is different from the account currency (USD). Conversion doesn't apply to the calculation of payouts, because the quote currency (USD) is the same as the account currency (USD).
Example 3: No matches
Let's say your account currency is GBP and you are trading the AUD/CHF currency pair. Conversion will be applied to the margin calculation because the account currency (GBP) is different from the base currency (AUD). Conversion is also applied when calculating payouts: they are first calculated in CHF, the quote currency, and then converted to GBP, the account currency.
To calculate your margin level, use the following formula:
Margin call and Stop out
When a trader's margin level falls below 100%, the broker initiates a procedure known as a margin call. In the event of a margin call, the trader is required to either deposit more money into his/her account or close losing positions. If the margin level falls below 50%, losing positions will be forcibly closed by the company.
Maintenance margin is the minimum amount of capital a trader must have in his or her account in order to keep a leveraged position open.
A stop out is an event that occurs when a trader's equity is not sufficient to maintain open positions, hence they get forcibly closed by the broker.