Forex is traded on margin. This means that you can leverage your investment by opening positions of larger size than the funds you have to place as margin collateral. Margin means the amount of funds (e.g. cash or collateral provided to Saxo (if applicable)), reserved on your trading account to cover any potential losses from open FX positions, and any other margin positions.
Margin requirements differ by currency pair and depend on the exposure in the currency pair. Margin requirements may be subject to regulatory mandated minimums and may be subject to change according to the underlying liquidity and volatility of the currency pair. For this reason, the most liquid currency pairs (the majors) in most cases require a lower margin requirement.
Saxo offers tiered margin methodology as a mechanism to manage political and economic events that may lead to the market becoming volatile and changing rapidly. With tiered margin, the average margin requirement (‘Blended Margin Requirement’) increases with the level of exposure. The opposite is also true; as the level of exposure decreases the margin requirement also decreases. This concept is illustrated below:
The different levels of exposure (or tiers) are defined as an absolute number of U.S. Dollars (USD) across all currency pairs. Each currency pair has a specific margin requirement in each tier. A complete list of margin requirements by currency pair can be viewed here as well as in the SaxoTrader platforms, under Trading Conditions.
Please note that margin requirements may be changed without prior notice. Saxo reserves the right to increase margin requirements for large position sizes, including client portfolios considered to be of high risk.
To create a buffer between your trading capacity and the margin close-out level, which ESMA has standardised, we apply two different margin requirements:
- Initial margin: a pre-trade margin check on order placement, i.e. on opening a new position there must be sufficient margin collateral available on account to meet the initial margin requirement.
- Maintenance margin: a continuous margin check, i.e. the minimum amount of margin collateral that must be held on account to maintain an open position(s). Maintenance margin is used to calculate the margin utilisation.
A complete list of margin requirements by currency pair can be viewed here as well as in the SaxoTrader platforms, under Trading Conditions.
Margin Trading carries a high level of risk to your capital with the possibility of losing more than your initial investment and may not be suitable for all investors.
Ensure you fully understand the risks involved and seek independent advice if necessary.
See our Risk Warning.
Forex Risk Warning
Forex is categorised as a red product as it is considered an investment product with a high complexity and a high risk.
Danish banks are required to categorise investment products offered to retail clients depending on the product’s complexity and risk as: green, yellow or red. For further information click here