In the Equity market Margin usually means borrowing up to 50% of the value of a particular stock to buy it. However it is much different in the FX market. Margin in the FX market is the minimum deposit balance needed to make a trade. Put another way, FX margin is the collateral for your trades.

Because the FX market generally has much less volatility than other markets there is usually a high level of leverage offered. With this low volatility is a method to increase returns by allowing relatively small amounts of money to control much larger ones. However, as in any market, to obtain greater returns you need to take greater risk and it must be managed carefully.

Leverage for Kawase Trader Silver is 100:1 or 1% and for Kawase Trader Gold it is 50:1 or 2%

Here's an Example using Kawase Trader Silver

With a US$1,000 (~120,000 yen) balance in your account, you decide that the US Dollar (USD) is undervalued against the Japanese Yen (JPY)

Based on this belief, you buy Dollars (sell JPY), and then wait for the exchange rate to rise.

The current bid/ask price for USD/JPY is 118.10/118.13 (meaning you can buy $;1 US for 118.13 Yen or sell $1 US for 118.10 Yen)

Because your leverage in Kawase Trader Silver is 100:1 or 1%. when you execute the trade, you buy a standard one lot, 100,000 US dollars and sell 11,813,000 JPY. At 100:1 leverage, your initial margin deposit for this trade is $1,000.

You were right, USD/JPY rises to 118.63/118.66. Since you're long dollars (and are short Yen), you now close out the position, selling one lot, 100,000 US dollars and receiving 11,863,000. Since you originally sold (paid) 11,813,000 JPY, your profit is 50,000JPY.

To calculate your P&L in terms of US dollars, simply divide 50,000 by the current example USD/JPY rate of 118.63. Your profit on this trade is $421.47

So for your $1,000 investment you made $421.47 or a 42% return. If you had not used leverage your return would be less than 0.5%.

Margin Calls

Although there are usually no margin calls in forex trading, at FXFor Japan we have 3 levels of margin notifications, 110%, 125% and 150% for your protection.

To explain these levels lets use the following example.

Say you have $1,000 in your account and you decide to buy a 1 lot ($100,000) with 1% leverage.

If the market goes against you, i.e. you are in a loss position, when your available margin (deposit +- any profit or loss) reaches $910 or you have used 110% of your margin you have breached the first of the 3 margin calls. At this stage you will be notified automatically via the Kawase Trader platform and we will request an acknowledgement from you.

If the market continues to go against you and you haven't topped up your account and your margin goes to $800 or you have used 125% of your available margin you will have breached the 2nd of the 3 margin levels. Once again you will receive a stronger worded notification directly through the Kawase Trader Platform and again acknowledgement will be requested.

If no action has been taken and you continue to lose and your available margin goes to $667 or you have used 150% of your margin this is the 3rd and most serious level of the 3 margin calls. If this happens Kawase Trader will AUTOMATICALLY close out any open positions at the first available opportunity under the prevailing market conditions. Also at this stage your account will be suspended to ensure that no further adverse positions are entered.

The margin status, including the current “Use of Equity for Margin” is always visible in the Account Summary Module of Kawase Trader. For a Use of Equity for Margin of 100% you are right on the margin and all your available equity is used to cover the current trading positions. For Use of Equity for Margins above 100% as in the examples above, you have exceeded the available margin and must take appropriate steps to bring your position within the available margin.

On our Learn page we talked about not using your entire margin for trading.

Do not over trade. One of the most common mistakes that traders make is leveraging their account too high by trading much larger sizes than their account should prudently trade. Leverage is a double-edged sword. Just because one lot (100,000 USD) of currency only requires $;1000 as a minimum margin deposit, it does not mean that a trader with $5000 in their account should be trading 5 lots.

One lot is $100,000 and should be treated as a $100,000 investment and not the $1000 put up as margin. Most traders analyze the charts correctly and place sensible trades, yet they tend to over leverage themselves. As a consequence of this, they are often forced to exit a position (stopped out) at the wrong time.