Guide to margin calls

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A margin call is a request for funds, to be held as a deposit against your forward contracts. It is triggered if the exposure of a forward contract exceeds the agreed variation margin.

The deposit enables you to maintain your forward position at the agreed rate. Ebury offers uncommon flexibility around margin calls but generally they are required to be paid within two business days.

Businesses with multiple forward contracts often employ net positions to reduce their likelihood of being margin called. The exposure across their forward positions is collated to create a cumulative risk position, so that positive P&L on some contracts can help offset exposure on others.

Margin calls are calculated differently for forward contracts and net positions.

When are margin calls issues on forward contracts?

For a standard forward contract the classic credit conditions are based on a percentage and your exposure per trade is taken into account.

If the sell currency appreciates by more than the variation margin, a margin call would be issued.

For example:

Contract terms:

Initial deposit: 0%
Variation margin: 2.5%
Margin call: 2.5%


Open forward position:

Buy EUR Sell GBP @1.1815

If GBP appreciates above the 2.5% variation margin, a margin call would be issued at 2.5% of the remaining notional, as set out in the initial terms of the contract. If the exposure drops to zero, the margin call will be refunded.

 

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