How to calculate margin requirements on Hedges

In Hedge-type accounts, we have the possibility of opening hedging positions, so we can open buy and sell orders in the same instrument, whether with the same volume or not, so we can Hedge our position fully or partially (Full Hedges or Partial locked).

• If the volume is the same, it is a Fully hedged position, e.g.: 1 lot EURUSD buy and 1 lot EURUSD sell;

• If the volume is not the same, it is a Partial locked position, e.g.: 1 lot EURUSD buy and 1.5 lot EURUSD sell.

Key points:

1. The margin for Hedge positions is calculated as 50% from a normal margin;

2. To calculate the margin for partially hedged positions (Partial locked), we must first calculate the margin for the fully hedged part and then add the remaining uncovered margin. The margin for the remaining part is calculated the same way as a normal margin.

3. If my account-based currency is different than the margin currency, we will need to perform a currency exchange to complete our calculation.

Example of calculating a Full hedged position

• We opened a 1 lot buy position in EURUSD yesterday at 12:00 p.m.

• We open a 1 lot sell position in EURUSD today at 12:00 p.m.

• My account currency is EUR

• Let's assume a maximum leverage of 1:500

In this example, we have Full Hegde our Buy order with our Sell (this means that we take 50% of the margin from the Buy order and the Sell order). On the other hand, both the margin and the currency of my account are in EUR, so there is no currency exchange to be made.

• Notional Value = 1 lot *100.000 = 100.000 EUR

• Margin = Notional Value/leverage = 100.000/500 = 200 EUR

This would be the margin for each position if we did not have a hedge position, but we take 50% of the Buy and the Sell order.

• Margin of the Buy order = 200 EUR *0.5 = 100 EUR

• Margin of the Sell order = 200 EUR *0.5 = 100 EUR

• Total Margin = Margin of the Buy order + Margin of the Sell order = 100 +100 = 200 EUR
  
  

Example of calculating a Partial Locked position

• We opened a 1 lot buy position in EURUSD yesterday at 12:00 p.m.

• We open a 1,5 lot sell position in EURUSD today at 12:00 p.m.

• My account currency is EUR

• Let's assume a maximum leverage of 1:500

In this example, we can define the sell position of 1.5 lots in the EUR as: 1.5 lots = 1 lot + 0.5 lots. So, in this case, we have an example of a fully hedged position of 1 lot and a remaining unhedged volume of 0.5 lots.

• Notional Value = 1 lot *100.000 = 100.000 EUR

• Margin = Notional Value/leverage = 100.000/500 = 200 EUR

• Margin of the Buy order = 200 EUR

• Margin of the Sell order of 1.5 lots = Margin of 1 lot + Margin of 0.5 lots

Therefore, if we have 1 Buy lot covered with 1 Sell lot, we need 50% of the margin of the purchase and 50% of the sale

• Margin of the buy order = 200 EUR *0.5 = 100 EUR

• Margin of the sell order = 200 EUR *0.5 = 100 EUR

• Total Margin of the hedge position = margin of the buy order + Margin of the sell order = 100 +100 = 200 EUR

Given that we have a volume of 0.5 lots of the Sell order left uncovered, we must calculate this margin and add it to the previous one.

• Margin (0.5 lots) = 0.5 *100 000 / 500 = 100 EUR

• TOTAL = 200 +100 = 300 EUR

If you have any questions, do not hesitate to contact us.