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Basic Mechanics of FX

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Basic Mechanics of FX

Margining

Margin is a term derived from the futures market, and provides for leveraged trading in financial products. In its most simple format, if you offered the trading of an instrument at 6% margin, in effect you need only to deposit 6% of the total purchase cost of that deal to open that position.

Example 1 :
You buy 200,000 GBP/EUR spot @ 1.45. This provides a notional position of Long GBP 200,000 and Short EUR 290,000 (200,000 x 1.45). The total value is effectively margined at 6%, so in this example 6% x GBP 200,000 = GBP 12,000. The margin to support this position can be deposited in CAD or USD, the equivalent currency amount would be required.

 
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* CMC Markets is remunerated for its services from the spread between bid and ask prices. ** Forex market operates over-the-counter from Sunday 4pm EST - Friday 5pm EST. *** Examples used are for illustrative purposes only and not to be misunderstood as a recommendation. Real market conditions will vary the results