The Forex market is exciting and accessible to small retail traders because of the industry’s high leverage options. Leverage gives a trader the ability to increase the potential return on an investment. Leverage works both ways however; it increases potential returns, but it also increases potential risk. Therefore leveraging magnifies both gains and losses.

Leveraging a position involves putting down collateral, known as margin, to take on a position that is larger in value. CMS Forex offers a maximum leverage option of 400 to 1. This means to take on a standard $100,000 lot or contract, a minimum margin of $250 is required.

How is this possible? In the Forex market, when trading the established currencies that CMS Forex offers, the amount that a currency changes in any given day is quite small. A one cent (or approximately 100 pip) change in the value of a currency is considered a large move. Therefore we can afford to hold a fairly small amount of collateral for any given position.

For example let’s take a trader with $1,000 in his account. Our trader buys 1 lot of EUR/USD at a price of 1.2750 with the 400:1 maximum leverage. His utilized margin is $250. If the position makes money, the gains are added to the equity in the traders account. Likewise if the position goes against the trader the losses are subtracted from the account’s total equity. If the price moves 100 pips in the trader’s favor (the exchange rate moves upwards one cent to 1.2850), then the trader would make a $1,000 profit ($10 per pip × 100 pips). The trader has effectively doubled the size of his account, a 100% return on his $1,000 account or a 400% gain on his $250 margin. Conversely if the position had gone at least 75 pips against the trader, his position would have been closed due to a margin call when his account equity dropped below his $250 margin requirement. The trader would have a loss of approximately $750, or 75% of his initial account, and about $250 remaining in his account. 

 

Margin and Leverage Options

# of Standard (100K) Lots	# of Mini (10K) Lots [1 Mini Lot = 0.1 Standard Lots]	Margin Requirement per Standard (100K) Lot	Margin Requirement per Mini (10K) Lot	Leverage*
Option 1 (Default)
0 – 3	0 – 30	$250	$25	400 : 1
3.1 – 10	31 – 100	$500	$50	200 : 1
10.1 – 50	101 – 500	$1,000	$100	100 : 1
50.1 & up	501 & up	$2,500	$250	40 : 1
Option 2
0 – 50	0 – 500	$1,000	$100	100 : 1
50.1 & up	501 & up	$2,500	$250	40 : 1
Option 3
0 & up	0 & up	$2,500	$250	40 : 1

To minimize our clients’ overall risk exposure the above requirements are calculated on a per-account rather than per-position basis. For example, if you buy 4 lots of EUR/USD and sell 2 lots of USD/JPY, the margin requirement for your account will be $2,250.

($250 × [3 lots EUR/USD])	+	($500 × ([1 lot EUR/USD] + [2 lots USD/JPY]))	=	$2,250
($250 × 3 lots)	+	($500 × 3 lots)	=	$2,250
$750	+	$1500	=	$2,250

By default all accounts opened with CMS Forex are set to the Option 1 margin requirement. To request Option 2 or 3 as your margin requirement please email Customer Service with your name, account number and the margin requirement option you wish applied to your account.

 

Non US Dollar Based Accounts

Clients with accounts denominated in a base currency other than US Dollars should convert the above amounts into their base currency to calculate their margin requirements. For example a Japanese Yen based account with an open 1 lot position would have a margin requirement of ¥28,750 Japanese Yen if the current USD/JPY rate is 115.00 [$250 USD × 115.00 = ¥28,750 JPY]. In the case of a British Pound based account, an open 3 lot position would have a margin requirement of £405 British Pounds if the current GBP/USD rate is 1.8518 [(3 lots × $250 USD) / 1.8518 = £405 GBP]. Since all conversions are done automatically by our VT Trader software the moment a new position is opened, your margin requirement will always be displayed in your account’s base currency.

Trading Terms

†CMS is compensated through the Bid/Ask spread.

‡For qualifying accounts only.

*Leverage magnifies both gains and losses.