Before we move on to in-depth explanation of Margin calculation in ECN accounts, let us highlight the key peculiarities of this account type. This will help traders avoid mistakes in free Margin calculation when trading in ECN accounts, especially using “aggressive” Expert Advisors (EAs).
ECN accounts operate based on the technology, that allows traders (Company clients) trade in the familiar and well-known MT4 environment, but all the trades are transferred to the ECN Market Place. This approach is known as STP/ECN (Straight Through Processing - Electronic Communication Network). The funds are accumulated in the Company's trading account on the ECN Market Place. The trading operations on ECN Market Place are executed on behalf the Company and their financial result is recorded exactly in accordance with the operations executed by clients in their ECN trading accounts.
All Pending Orders (Buy Limit, Sell Limit, Buy Stop, Sell Stop) are placed on the ECN Market Place Trading Terminal and can be executed at any moment, depending on the other ECN Market Place participants' trading activity. That is why every time a Client places a Pending Order from his MetaTrader 4, additional Margin is reserved in the Client's trading account. The following formula is used to calculate the total used Margin for each currency pair:
The Total Used Margin, including the Margin reserved for Pending Orders is displayed in the right bottom corner of the Market Depth monitoring software (see pic. 1 LEVEL II ).
|Margin amount, displayed in the MetaTrader, window Terminal, tab Trade, does not include funds reserved for Pending Orders!|
To avoid potential misunderstanding and mistakes, that this peculiarity of ECN accounts may cause, let us provide a step-by-step explanation of the Margin reservation procedure. This will help us illustrate the difference in Margin calculation modes for ECN and MM (Micro) accounts.
A client has two opened trades in his ECN account: 5.00 lots SELL USDCHF and 3.00 lots BUY USDCHF. Contract Size for USDCHF symbol – $100,000. User Leverage – 1:100.
The total Volume for all open market buy orders in this case is equal to 3.00 lots and the total volume for all open market sell orders is 5.00 lots. The 3.00 lots for buy orders are hedged with the 3.00 lots for sell orders and the 2.00 lots for sell orders are not hedged. The 3 hedged lot pairs require 50% margin, i.e. like for 3.00 lots opened without hedge. In our case the total required margin is equal to 5,000, where 2 000 is the margin for 2.00 lots without hedge and 3 000 is the margin for 3 pairs of hedged lots. We can also calculate the margin using the formula that has been described above:
There are no Pending Orders in the account, so the MetaTrader 4 and LEVEL II display identical Margin which is equal to $5,000 (see pic. 2).
The Client has placed a SELL Limit Pending Order of 4.00 lots in this account. The Margin displayed in the MetaTrader 4 is still the same, 5,000. And the Margin displayed in the LEVEL II has changed as Margin has been reserved for the SELL Limit Pending Order (see pic. 3).
Use the following formula to calculate the Margin in the LEVEL II:
The total volume for all BUY orders is 3.00 lots, the total volume for SELL orders is 9.00 lots. Out of them, 3.00 pairs of lots are hedged and 6.00 lots SELL are not hedged.
The Client has placed a BUY Limit Order with volume of 4.00 lots in his account.
The Margin displayed in the LEVEL II has not changed and is still equal to $9,000. See the formula:
The Margin displayed in the MetaTrader 4 has not changed as well and is equal to $5,000.
Please, note that the Margin reserved for Pending Orders does not influence the STOP OUT procedure. Loosing trades are closed by Broker (FXOpen) automatically according to the STOP OUT procedure when the account equity is not enough to keep the trades open. This procedure is initiated according to the Terms of Business.
* 6.1. The Company is entitled to close the Customer's Open Positions without the consent of the Customer or any prior notice if the Equity is less than the particular level in percent of the (Initial) Necessary Margin as additionally specified on the company's website (TRADING > Trading Accounts).