Currency Margin Calculation
Overview:
The following provides an example of how currency margins are calculated.
Margin for Trading Example
Assume base currency is USD for the below example
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Determine the base-currency equivalent of net liq values in the account
Net Liq USD Equivalent EUR: -14,362.69 -19,712.723 KRW: 6,692,613.37 5032.04 USD: 15,073.07 15,073.07 Using exchange rates as follows
EUR USD 0.72860
KRW USD 1330.00000
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Determine the haircut rates for each currency pair
HairCut Rates:
USD EUR .025 USD KRW .10 EUR KRW .10 -
Determine the largest negative currency balance
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Sort the haircut rates from smallest to largest
EUR USD 0.025 EUR KRW 0.10 -
Starting with the positive net liq base-currency equivalent with the lowest haircut rate, calculate the margin requirement on that portion which may be used to off-set the negative net liq value.
Consume 15,073.07 USD equivalent against the EUR
Margin1 = (15,073.07) x 0.025 = 376.82
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Repeat step (5) until all negative net liq values have been covered
Remaining negative net liq
-19,712.723 + 15,073.07 = -4,639.65
Consume remaining negative net liq with 4,639.65 USD equivalent of KRW
Margin2 = (4,639.65) x 0.10 = 463.97
Remaining negative net liq
-4,639.65 + 4,639.65 = 0.00
Total margin requirement = Margin1 + Margin2 = 376.82 + 463.97 = 840.79