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Forex
FREQUENTLY ASKED QUESTIONS
What is margin?
Margin can be thought of as a good faith deposit required to maintain open positions. This is not a fee or a transaction cost, it is simply a portion of your account equity set aside and allocated as a margin deposit. Margin requirements (per 1K lot) at PCM are determined by taking a percentage of the notional trade size plus a small cushion. A cushion is added to help alleviate daily/weekly fluctuations.
Why trade on margin?
Trading on Margin (Trading with Leverage*) is a common attraction of the forex market. It allows you to open trades that are larger than the capital in your account.
EXAMPLE
In the example above, US$1,000,000 have been purchased through a long USD/JPY position with a US$50,000 account balance (20:1* Leverage).
Trading on margin can both positively and negatively affect your trading experience as both profits and losses can be dramatically amplified.
EXAMPLE
In the example above, US$1,000,000 have been purchased through a long USD/JPY position with a US$50,000 account balance (20:1* Leverage).
Trading on margin can both positively and negatively affect your trading experience as both profits and losses can be dramatically amplified.
What leverage does PCM offer?
PCM offers flexible leverage on its forex trading accounts. The maximum amount of leverage available is around 200:1*. The high degree of available leverage is a popular attraction for many traders to the forex market, and most PCM traders use the default leverage (determined by the default margin settings). But the amount of leverage utilized in your trading is up to you.
Why PCM encourages lower leverage?
When you use excessive leverage, a few losing trades can quickly offset many winning trades. To clearly see how this can happen, consider the following example.
Scenario: Trader A buys 50 lots of USD/JPY while Trader B buys 5 lots of USD/JPY.
Questions: What happens to Trader A and Trader B account equity when the USD/JPY price falls 100 pips against them?
Answer: Trader A loses 41.5% and Trader B loses 4.15% of their account equity.
EXAMPLE
By using lower leverage, Trader B drastically reduces the dollar drawdown of a 100 pip loss.
Scenario: Trader A buys 50 lots of USD/JPY while Trader B buys 5 lots of USD/JPY.
Questions: What happens to Trader A and Trader B account equity when the USD/JPY price falls 100 pips against them?
Answer: Trader A loses 41.5% and Trader B loses 4.15% of their account equity.
EXAMPLE
By using lower leverage, Trader B drastically reduces the dollar drawdown of a 100 pip loss.
How can you increase your margin requirements?
The lowest available margin setting (also the default margin setting) is 0.5%. You can request to increase your margin settings at any time through your PCM Account Profile at simply choose the margin requirement you desire. (Margin changes can take as long as one business day to be reflected in your account.)
Where can I view PCM's up-to-date margin requirements?
Up-to-date margin requirements are listed by currency pair in the MMR column of the "Simple Dealing Rates" window within the platform.
Is there a debit balance risk? Can I lose more money than I deposit?
Not with PCM. It is PCM's policy to credit accounts to a zero balance when debit balances occur as a result of trading.
one of the greatest concerns traders have about leverage is that a sizable loss could result in owing money to their broker. At PCM, your maximum risk of loss is limited by the amount in your account. All accounts are tracked by our "Margin Watcher" feature. With the Margin Watcher feature, if account equity falls below margin requirements, the PCM Trading Station will trigger an order to close all open positions.
one of the greatest concerns traders have about leverage is that a sizable loss could result in owing money to their broker. At PCM, your maximum risk of loss is limited by the amount in your account. All accounts are tracked by our "Margin Watcher" feature. With the Margin Watcher feature, if account equity falls below margin requirements, the PCM Trading Station will trigger an order to close all open positions.
Leverage is a double-edged sword, and can dramatically amplify your profits. It can also just as dramatically amplify your losses. Trading foreign exchange with any level of leverage may not be suitable for all investors.