Margin Foreign Exchange Trading

What is it?
Margin forex trading facility allows you to access the global, 24-hour forex market. A money deposit (initial margin) allows you to control a position many times larger than the size of the deposit.

The contracts that are actively traded are the major currencies against the US Dollar. These include the Japanese Yen, Euro, Swiss Franc and British Pound.

For example,

• Initial margin for USD/JPY = 10% of contract size
• Contract size = USD 100,000
• Initial margin = USD 10,000

With margin forex, you are able to capitalise on the principle of leverage. A small fluctuation in forex rates will result in a relatively large movement in the overall value of your position (which can be either favourable or unfavourable).

Price Quotes
Price quotes are very much in line with the prevailing prices in the interbank forex market. Whenever a price quote is requested, a two-way bid/ask spread is given.

For example,

• A bid/offer quote for USD/JPY: 130.00 / 130.10
• The trader buys at the ask price and sells to the bid price.

Foreign Exchange Quotation
FX is quoted on a market-making basis with both bids and offers quoted. Currency values are, as a matter of practice, expressed in units equivalent to one US Dollar. The exceptions are the Euro, British Pound, Australian and New Zealand Dollar, which are expressed in units of US Dollar equivalent to one unit of the currency.

Example of a quotation for the Japanese Yen.

USD/JPY 118.40 - 118.50

• 118.40 is the price at which the customer can sell the US Dollar and buy the Japanese Yen.
• 118.50 is the price at which the customer can buy the US Dollar and sell the Japanese Yen.

Example of a quotation for the British Pound.

GBP/USD 1.5330 - 1.5340

• 1.5330 is the price at which the customer can sell the British Pound and buy the US Dollar.
• 1.5340 is the price at which the customer can buy the British Pound and sell the US Dollar.

Initial Margin
Initial margin is simply a money deposit that is required to support an open position. As all corporate members of SGX-DT are prohibited from extending unsecured credit facilities to customers, all open positions of customers are required to be fully margined. The amount of initial margin required is determined essentially by the volatility of the currencies and may be adjusted from time to time.

For example,

Initial margin for USD/JPY = 10% of contract size
Contract size = USD 100,000
Therefore, initial outlay = USD 10,000

Movement Of Funds
Margin FX trading is traded on a roll-over basis and does not involve any movement of funds. No delivery is involved. Although there is buying or selling of currencies, you may at any time liquidate the position by doing an opposite sell or buy.

Example Of Trading Margin FX

In a scenario where you are bullish on the US Dollar against the Japanese Yen and wish to profit from it, you can buy the US Dollar and sell the Japanese Yen by buying a quantity of the USD/JPY currency pair.

Buying USD/JPY
Contract size = USD 100,000
Minimum movement = 0.01
Value of a 0.01 movement = JPY 1,000

If you had bought 100,000 USD/JPY at 108.50, and the market is currently trading at 110.50, and you execute a sell to liquidate the position,
Profit = (Selling Price - Buying Price) x Contract size
= 200 points x JPY 1,000
= JPY 200,000

Conversely, you would incur a loss if you sold USD/JPY at 118.50 and liquidated the position at 120.50. Your account will then be credited/debited with the daily interest rate differential between the currency purchased/sold and the other currency sold/purchased. You can in fact be holding on to a FX position for an indefinite period of time (provided the margin requirement is met).

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