FX and CFDs are leveraged products, it provides a trader with the ability to control large amounts of capital using very little money. The higher the leverage, the higher the level of risk.
|Instrument Group||Symbol||Margin %|
|Forex||All||1% (0.5% by request)|
|Forex||TRY & HKD crosses||5%|
Margin level is calculated by Equity divided by used margin. It is advised that you should either close off positions to free up margin or add additional funds to increase available margin.
As a broker that sends trades to the market, we are extremely risk averse when it comes to overleveraged accounts which can lead to negative balances. Negative balances can occur if you are holding exposure and the market moves to a new level which leads to a loss on your open positions greater than the balance of your account. The trades are then closed, leaving a negative balance.
It's important to note that if your account balance goes negative you will be required to deposit funds to bring the account balance back to 0. This doesn’t happen very often but if you are hovering in Margin Call territory then your chances of a negative balance occurring are much higher.
On a B-book broker when an account goes negative, the broker has first of all made the entire deposit as profit and since the clients trades did not go to market the broker doesn't owe that money to a counterparty AKA liquidity providers. With Global Prime if an account goes negative the trades were executed in the real market so we have real exposure with our Prime Brokers and liquidity providers and we would owe that negative balance to those counterparties.
This is obviously something that we never want to see happen and is one of the reasons why we endeavour to contact you when overexposed to ask that you check and reduce your exposure to ensure it doesn’t get to that.
This means that Equity divided by used margin equals 1. In other words equity has dropped so low that it equals the used margin. For example if you have $5,000 balance, $500 margin and a -$4,500 sustained loss resulting in $500 running equity. In the event of a market gap, the Margin Stop may not protect an account from going into negative balance. The more exposure carried, the higher the risk of a negative balance occurring.
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Trading a leveraged security means that you have access to far more buying power within the market then your actual balance would allow. A ‘down payment’ or ‘collateral’ of sorts is required in order for us to provide you the leverage you wish to trade with. This ‘collateral’ is what is referred to as margin. For leverage of 1:100, 1% must be put up by the client as collateral, or 1% margin.
This depends on the leverage you have on your account. For accounts with 1:100, the margin requirement is 1% and for accounts with 1:200, the margin requirement is 0.5% of the intended exposure.
Leverage refers to the ability for you to maximise your buying potential by enabling clients to trade at multiples of their account balance. For instance, if you have 1:100 leverage with an account balance of 1000 USD, your buying power in the FX market is 100,000 or 100x your account balance.
We offer standard leverage of 1:100 with a maximum leverage of 1:200, pending an assessment of the riskiness of your trading style. Reach out to our team to find out more.
Global Prime does not offer negative balance protection.
We do have other protections in place to try to mitigate the possibility for a negative balance. This takes the form of our margin call level at 120% that is designed to provide you with a warning shot that your positions are close to being stopped out which occurs at 100%. This system is in place as a risk mitigation mechanism that is designed to prevent you from going into negative balance on losing trades however, this is not guaranteed and it is possible to go into negative balance even with the margin stop out.
Margin call = warning shot that your positions are close to stop out level, occurs at 120% margin level
Margin stop out = when equity divided by free margin = 1 ie: when your margin level reaches 100%, your positions will be stopped out in an effort to free up margin and prevent the account balance from going into negative territory.
Higher leverage results in the ability to open larger positions then your account balance. Accordingly, higher leverage can result in a higher losing potential including losing more than your initial deposit.
If your account goes into negative balance, you are required to deposit the amount required in order to bring the balance back to 0.