Overview:
The following provides an example of how currency margins are calculated.
Margin for Trading Example
Assume base currency is USD for the below example
1.Determine the base-currency equivalent of net liq values in the account
| Net Liq | USD Equivalent | |
| EUR: | -14,362.69 | -19,712.723 |
| KRW: | 6,692,613.37 | 5032.04 |
| USD: | 15,073.07 | 15,073.07 |
Using exchange rates as follows
EUR USD 0.72860
KRW USD 1330.00000
- Determine the haircut rates for each currency pair
HairCut Rates:
| USD | EUR | .025 |
| USD | KRW | .10 |
| EUR | KRW | .10 |
- Determine the largest negative currency balance
- Sort the haircut rates from smallest to largest
| EUR | USD | 0.025 |
| EUR | KRW | 0.10 |
- Starting with the positive net liq base-currency equivalent with the lowest haircut rate, calculate the margin requirement on that portion which may be used to off-set the negative net liq value.
Consume 15,073.07 USD equivalent against the EUR
Margin1 = (15,073.07) x 0.025 = 376.82
- Repeat step (5) until all negative net liq values have been covered
Remaining negative net liq
-19,712.723 + 15,073.07 = -4,639.65
Consume remaining negative net liq with 4,639.65 USD equivalent of KRW
Margin2 = (4,639.65) x 0.10 = 463.97
Remaining negative net liq
-4,639.65 + 4,639.65 = 0.00
Total margin requirement = Margin1 + Margin2 = 376.82 + 463.97 = 840.79