What is a forward contract initial margin?

What is a forward contract initial margin?

Due to currency market volatility, entering into a forward contract requires some financial commitment from you in the form of an initial margin which is held on account until your final drawdown. Initial margin is always payable within one business day of entering into a forward contract.

How can I pay my initial margin?

You can pay this initial margin either in the currency you are selling, or in the currency you are buying.

If you pay in the currency you are selling, the amount you owe Equals Money is reduced by the initial margin amount. If you pay in the currency you are buying, we will return the full initial margin to you on successful completion.

The percentage and value of the initial margin we require you to hold against the contract will be shown on the platform and in your confirmation.

What if the market moves against me?

If market conditions move unfavourably against your contract, you may be required to pay additional margin. For example, if your additional margin terms are 3% then every time the market rate moves against your currency pair by 3%, we will contact you to request a minimum additional margin payment of 3% to bring your position back to the initial margin level.

Any additional margin payments must be received within one business day of Equals making the request, otherwise the trade is at risk of being closed with any loss incurred being invoiced to the client.

Worked example

A client buying 300,000 CHF at a rate of 1.2625 (costing £237,623.76 GBP) with a 10% initial margin requirement pays £23,762.38 GBP initially. When rates shift to 1.3005 (+3%), the contract value drops to £230,680.51 GBP. Equals Money requests an additional margin payment of £6,943.25 GBP, bringing the total initial margin held to £30,705.63 GBP.