This section explains how Dynamic Leverage works as well as how “Margin Used” is calculated in cTrader. The margin used by open positions is related to the leverage given for each position opening. Dynamic leverage can be set to work in two very different ways. One method recalculates margin requirements upon each event, the other calculates margin requirements upon opening the position and is constant throughout the lifetime of the position, this concept is explained in this section, everything on this page is important and it is urged all traders understand this.
There are two types of leverage in cTrader. These are the account’s leverage and the volume based dynamic leverage. The account’s leverage is the maximum leverage allowed for each trading account. It is set during the account’s creation and can only be modified by your broker.
Brokers have the ability to dynamically reduce leverage after a volume of open positions is surpassed for each symbol and direction. The Dynamic Leverage tiers can be found for each symbol from the MarketWatch section, in the Symbol Window or Info Panel. An example of tiered leverage is the following;
Despite your account having leverage of 1:500 (for example), this doesn’t mean all positions for all symbols will use this value for calculating margin requirements, this value is simply the limit on how much leverage your account will use in the event that your broker allows more for a certain symbol. If your broker uses Dynamic Leverage the applicable leverage for each volume tier is calculated dynamically for each symbol based on the following equation;
Applicable Leverage Tier X = Min(Account Leverage, Volume Based Leverage Tier X)
| Tier | Volume in USD | Leverage |
|---|---|---|
| 1 | 0-1mill | 500 |
| 2 | 1-2mill | 200 |
| 3 | 2-3mill | 100 |
| 4 | >3mill | 50 |
According to the above Dynamic Leverage table the equation can be better understood like this;
Tier 2 = min(500, 200). This means that for this tier the leverage that will be used is 1:200.
If your account leverage is 1:100 the equation can be understood like this;
Tier 1 = min(100, 500) Tier 2 = min(100, 200) Tier 3 = min(100, 100)
This means at tier 1 your margin is still calculated using 1:100, the same for tier 2 and tier 3.
The leverage tiers are always represented in USD volume, regardless of the symbol.
For example;
Opening a position of 1,000,000 Buy EURUSD @ 1.12542
Total Buy Volume is 1,000,000 EUR (1 000 000*1.12542 = 1,125,420 USD)
Because the USD exposure of this position is 1,125,420 USD it will fall within two tiers (tier one and tier 2)
Margin Used for Position will be calculated like this:
1 000 000/500 = USD 2,000
125 420/200 = USD 627.10
Total Margin Used = USD 2627.10
Each symbol could have different Dynamic Leverage settings. The Dynamic Leverage tiers used to calculate Margin Used for a position is influenced by the exposure of a specific symbol and specific direction, the exposure is not netted off.
Margin is always converted into the accounts deposit currency. The calculation follows this process; Base Asset > USD (using spot rate depending on trade direction) > Deposit Currency (using spot rate depending on symbol structure)
Here is an example following the above process;
Account Balance = GBP | Zero positions (therefore zero exposure) | Leverage @ 1:500
BUY 100k EURUSD.
Margin Required = EUR 200
200 EUR into USD @ 1.09100 (ASK) = USD 218.20
Ask price us used because order direction is Buy
USD 218.20 into GBP @ 1.29400 (ASK) = GBP 168.62
Ask price is used because conversion of USD into GBP uses GBPUSD pair to behave like Selling USD to Buy GBP, therefore Ask price is used.
Exposure is calculated per symbol and separately for each direction. The exposure in each direction is used to calculate the margin required.
Here is an example of calculating exposure while opening positions in different directions;
Account Balance = USD| Zero positions (therefore zero exposure) | Leverage @ 1:500
Step 1
Open Position Buy 100k USDJPY.
Total Buy Volume/Exposure : 100k USDJPY
Total Sell Volume/Exposure : 0 USDJPY
Step 2
Open Position Sell 100k USDJPY.
Total Buy Volume/Exposure : 100k USDJPY
Total Sell Volume/Exposure : 100k USDJPY
Step 3
Open Position Buy 200k USDJPY.
Total Buy Volume/Exposure : 300k USDJPY
Total Sell Volume/Exposure : 100k USDJPY
This section includes a number of practical examples of margin calculation in conjunction with Dynamic Leverage and certain trading actions. For the below examples the following settings have been used;
Account Leverage: 500
Account Currency: USD
Volume Based Dynamic Leverage Tiers:
| Tier | Volume | Leverage |
|---|---|---|
| 1 | 0-1mill | 500 |
| 2 | 1-2mill | 200 |
| 3 | 2-3mill | 100 |
| 4 | >3mill | 50 |
Opening Positions
In the following example, we illustrate how the margin is calculated when a trader opens subsequently three positions on the same symbol, with the following variables in addition to the ones already defined above.
Position 1
Volume: 1 mil. Buy USDJPY
Total Buy Volume: 1 million USD
Margin Used for Position: 1 000 000/500 = 2000
Total Margin Used: 2000
Position 2
Volume: 1 mil. Buy USDJPY
Total Buy Volume: 2 million USD
Margin Used for Position: 1 000 000/200 = 5000
Total Margin Used: 7000
Position 3
Volume: 1 mil. Buy USDJPY
Total Buy Volume: 3 million USD
Margin Used for Position: 1 000 000/100 = 10000
When Dynamic Leverage is used by a broker, this causes different amounts of margin being taken for different positions according to which tier they fall in at the time they were opened. As exposure is reduced by closing, reducing or reversing positions, the tiers that the remaining exposure / positions fall within could be different, this may cause margin requirements to be lower than what is being blocked by the remaining positions.
Brokers have the option to choose whether margin requirements should be recalculated when exposure is reduced, or not.
To ensure the correct amount of margin is being used according to the exact amount of exposure against the Dynamic Leverage tiers assigned to the symbol, or if margin requirements should be locked to position once it is created. Both of these cases are explained further in this guide.
If recalculation is triggered, the position with the lowest volume will be recalculated first and the rest of the positions will be recalculated sequentially according to their size; smallest to largest.
If recalculating margin for positions is enabled by the broker recalculation can triggered by these events;
Trading when Margin is Recalculated
In this example we show how margin is recalculated for positions when a broker chooses to recalculate margin requirements. Margin is recalculated when trading events occur, for the specific symbol and direction in subject. The following properties are used for the example;
Account Leverage: 500
Account Currency: USD
Volume Based Dynamic Leverage Tiers:
| Tier | Volume | Leverage |
|---|---|---|
| 1 | 0-1mill | 500 |
| 2 | 1-2mill | 200 |
| 3 | 2-3mill | 100 |
| 4 | >3mill | 50 |
The account has three positions as illustrated below;
Position 1: 1,000,000 BUY USDJPY - Margin Used for Position: 2000
Position 2: 1,000,000 BUY USDJPY - Margin Used for Position: 5000
Position 3: 1,000,000 BUY USDJPY - Margin Used for Position: 10000
Total Margin Used: USD 17000
Step 1
Partially close Position 2 by 500,000 (half) - Margin Used for Position 2: 5,000/2 = USD 2,500
This action triggers recalculation for all positions according to current exposure.
Position 1: 1,000,000 BUY USDJPY - Margin Used for Position: 2,000
Position 2: 500,000 BUY USDJPY - Margin Used for Position: 2,500
Position 3: 1,000,000 BUY USDJPY - Margin Used for Position: 7,500
This example highlights how margin has been recalculated according to the reduction of Position 2.
Broker Changes Dynamic Leverage & Margin is Recalculated
When a broker changes Dynamic Leverage tiers and chooses to recalculate margin requirements for all positions, the Used Margin for your positions will change. This example shows what happens in this circumstance. The following properties are used for the example;
Account Leverage: 500
Account Currency: USD
Volume Based Dynamic Leverage Tiers:
| Tier | Volume | Leverage |
|---|---|---|
| 1 | 0-1mill | 500 |
| 2 | 1-2mill | 200 |
| 3 | 2-3mill | 100 |
| 4 | >3mill | 50 |
The account has three positions as illustrated below;
Position 1: 1,000,000 BUY USDJPY - Margin Used for Position: 2000
Position 2: 1,000,000 BUY USDJPY - Margin Used for Position: 5000
Position 3: 1,000,000 BUY USDJPY - Margin Used for Position: 10000
Total Margin Used: USD 17000
Let’s suppose that the broker decides to change the dynamic leverage for USDJPY as illustrated in the table below;
| Tier | Volume | Leverage |
|---|---|---|
| 1 | 0-1mill | 200 |
| 2 | 1-2mill | 100 |
| 3 | >2mill | 50 |
Then margin used will be recalculated immediately as follows;
Position 1: 1,000,000 BUY USDJPY
Position 2: 1,000,000 BUY USDJPY
Position 3: 1,000,000 BUY USDJPY
Total Margin Used = 35000
Note: It is very important to take notices about margin requirement changes from your broker very seriously because if your margin level drops below stop out level, some of your positions might be stopped out or partially stopped out to restore necessary margin.
Trading when Margin is NOT Recalculated
When margin recalculation is not used then margin is never recalculated even when you close positions. In this case each position blocks margin and holds it until the position is closed entirely, when partially closed margin will be released proportionately according to the total amount that is held by the position. This example illustrates this through a number of steps.
The following example explains this concept;
Account Leverage: 500
Account Currency: USD
Volume Based Dynamic Leverage Tiers:
| Tier | Volume | Leverage |
|---|---|---|
| 1 | 0-1mill | 500 |
| 2 | 1-2mill | 200 |
| 3 | 2-3mill | 100 |
| 4 | >3mill | 50 |
Step 1
Open Position 1: 1,000,000 BUY USDJPY - Margin Used for Position: 2000
Open Position 2: 1,000,000 BUY USDJPY - Margin Used for Position: 5000
Open Position 3: 1,000,000 BUY USDJPY - Margin Used for Position: 10000
Total Margin Used: USD 17000
Step 2
Close Position 2. The following positions remain;
Position 1: 1,000,000 BUY USDJPY - Margin Used for Position: 2000
Position 3: 1,000,000 BUY USDJPY - Margin Used for Position: 10000
Exposure of Long USDJPY = 2,000,000 (volume of Position 1 + volume of Position 3)
Your margin used will be calculated as follows;
Margin Used = Margin used for Position 1 + Margin used for Position 3 = 12000
Step 3
Open Position 4: 1,000,000 BUY USDJPY
Your margin used will be calculated as follows;
Margin Used = Margin used for Position 1 + Margin used for Position 3 + Margin Used for Position 4 = 22000
Step 4
Partially close Position 4 by 500,000 (half) - Margin Used for Position 4: 10,000/2 = USD 5,000
Partially close Position 1 by 500,000 (half) - Margin Used for Position 1: 2,000/2 = USD 1,000
Summary of Open Positions;
Position 1: 500,000 BUY USDJPY - Margin Used for Position: 1000 Position 3: 1,000,000 BUY USDJPY - Margin Used for Position: 10000 Position 4: 500,000 BUY USDJPY - Margin Used for Position: 5000
Your margin used will be calculated as follows;
Margin Used = Margin used for Position 1 + Margin used for Position 3 + Margin Used for Position 4 = 16000
Note: In this case, your old positions might be using more margin than required but you are not in danger of stop outs from changing margin calculation requirements.
Note: Contact your broker to clarify which of the two methods is used
Example #5
Broker Changes Dynamic Leverage & Margin is NOT Recalculated
When a broker changes Dynamic Leverage tiers and chooses to not to recalculate margin requirements for all positions, the Used Margin for your positions will not change. This example shows what happens in this circumstance. The following properties are used for the example;
Account Leverage: 500
Account Currency: USD
Volume Based Dynamic Leverage Tiers:
| Tier | Volume | Leverage |
|---|---|---|
| 1 | 0-1mill | 500 |
| 2 | 1-2mill | 200 |
| 3 | 2-3mill | 100 |
| 4 | >3mill | 50 |
Step 1
The account has three positions as illustrated below;
Position 1: 1,000,000 BUY USDJPY - Margin Used for Position: 2000
Position 2: 1,000,000 BUY USDJPY - Margin Used for Position: 5000
Position 3: 1,000,000 BUY USDJPY - Margin Used for Position: 10000
Total Margin Used: USD 17000
Step 2
Let’s suppose that the broker decides to change the dynamic leverage for USDJPY as illustrated in the table below;
| Tier | Volume | Leverage |
|---|---|---|
| 1 | 0-1mill | 200 |
| 2 | 1-2mill | 100 |
| 3 | >2mill | 50 |
Since the broker has chosen not to recalculate margin, no changes will occur in the Total Margin Used.
Step 3
Close Position 2
In this case the account will have the following positions and Total Margin Used
Position 1: 1,000,000 BUY USDJPY - Margin Used for Position: 2000
Position 3: 1,000,000 BUY USDJPY - Margin Used for Position: 10000
Total Margin Used: USD 12000
Step 4
Open Position 4: 1,000,000 BUY USDJPY
Margin Used = Margin used for Position 1 + Margin used for Position 3 + Margin Used for Position 4 = 32000