In Finance, Leverage is borrowing money to supplement existing funds for investments in such a way that the potential positive or negative outcome is magnified and/or enhanced.
For example, trading on leverage is like buying a home. When you want to buy a house with a mortgage, it means you don’t have enough money to buy the property out right. If you put a 20% deposit on a house worth $200,000 and make regular payments to the bank. You are using a smaller amount of money ($40,000) to control a larger asset ($200,000 house).
In Forex, trading on a leverage allows you to lever up your purchases.
As far as EGM Securities' clients are concerned the amount of leverage on their accounts will in part determine the amount of funds they need to put up front for a trade.
EGM Securities' clients have the option of using a system of floating leverage on their accounts. Floating leverage is based on current open positon and will decrease as the size of open positions increases. EGM Securities' floating leverage criteria is as follows:
EGM Securities uses a ‘Floating Leverage’ system which automatically applies the maximum leverage available on a trade by a trade basis depending on the client’s trade volume in USD.
|Nominal value of open position in USD||Maximum leverage offered|
|First USD 6Million||1:400|
|Next USD 2 Million||1:300|
|Next USD 2 Million||1:100|
|Next USD 5 Million||1:50|
- Nominal Value of open position = Number of lots x Contract size
- Example: Open positions over 15 Million USD nominal value, the first 6M will carry a leverage of 1:400, the following 2M carries a leverage of 1:300, the following 2M carries a leverage of 1:100, the following 5M carries a leverage of 1:50, and everything above 15M carries a leverage of 1:33.
The nominal value is in the first currency pair, to calculate the required margin you will need to convert the nominal value to USD, then convert the total to your account currency at the current exchange rate.
How to calculate the required margin with the Floating Leverage:
|Nominal Value of open position in USD||Maximum Leverage offered||Funds required to open (Required Margin)|
|First USD 6 Million||1:400||= 6,000,000 / 400|
= 15,000 USD
|Next USD 2 Million||1:300||= 2,000,000 / 300|
= 6666.66 USD
|Next USD 2 Million||1:100||= 2,000,000 / 100|
= 20,000 USD
|Next USD 5 Million||1:50||= 5,000,000 / 50|
= 100,000 USD
= XXXX / 33