Last week we reported on the Russian broker EXNESS increasing its leverage for ECN accounts, and now another broker follows this lead – ForexTime (FXTM) has just announced that it is cutting its margin requirements too.
Up until now, all the account types offered by FXTM came with the same maximum leverage – 1:500 – irrespective of account size or other factors. This has now been replaced by a detailed segmentation, and different margin requirements are applied depending on the amount of lots traded on a particular account, and also on and traded instruments.
Instrument-wise, FXTM is introducing five major groups: FX Majors, FX Minors, FX Exotics, spot metals, and FX RUB (why Russian ruble trading is a separate category is beyond my understanding).
This way, if you are trading major currency pairs on a Standard account, you would be subject to the following leverage:
- For accounts with notional value of $0 - $1,200,000: 1:1000
- For accounts with notional value of $1,200,000 - $7,000,000: 1:500
- For accounts with notional value of $7,000,000 - $12,000,000: 1:200
- For accounts with notional value of $12,000,000 - $17,000,000: 1:100
- For accounts with notional value of over $17,000,000: 1:25
If you are wondering what does notional value stand for, here is how it's calculated. Let's say you open a position of 5 lots on EUR/USD at 1.2800. The notional value for this position is 5 * 100,000 * 1.2800 = $640,000 .
The leverage for ECN and PAMM accounts is segmented on the same principle, only there it ranges between 1:25 and 1:500
. See all the different margin requirements here
Another thing you should keep in mind that the leverage offered by FXTM is floating. This can easily be explained this way:
If you open a few positions, and the cumulative notional value of $10 million (for the purpose of the example, you are trading a major currency pair on a Standard account). The first $1,200,000 of your cumulative open positions will be traded at leverage 1:1000; the next $5.8 million – at 1:500, and the remaining $3 million – at 1:200.
So far so good... but! I have said if before and I will never grow tired of saying it: the lower leverage you use for your trading, the better. Yes, in that case you are required to put a lot more collateral in order to open sensibly big positions, however this also protects you from sudden market swings and the degree of risk associated with these. Put in simple words, high leverage prevents you from practicing proper risk management, and this can easily (and quickly) end your forex career and deplete your investment budget.
Obviously, high leverage is a major point of attraction for new customers, especially for inexperienced traders, but I believe it is up to brokers to educate their clients about the risk that high leverage brings, and to set reasonable limits. And by my book, leverage of 1:1000 is far from reasonable.
Led by Mr Andrey Dashin, founder of Alpari, ForexTime Ltd is committed to providing the tools and support to ensure maximum performance for traders. ForexTime Ltd will offer trading and other investment services in Forex, commodities, precious metals, shares, indices and other financial instruments.
ForexTime Ltd has been granted a license as a Cyprus Investment Firm (CIF) by the Cyprus Securities and Exchange Commission (CySEC), license number 185/12.