Forex Margin Requirements by Broker

Forex trading is an advanced style of investing that involves buying and selling different currencies from around the world.

The forex market exploded following the Bretton Woods Agreement Act of 1971. Over $4 trillion is traded on the forex market each day and unlike the stock market, trades can be made 24 hours a day.

The forex market lacks the volatility of stocks. It takes a rare event to see a currency move more than a penny or 2 in a single day (think the British pound sterling following the Brexit vote in 2016).

Low volatility combined with high liquidity sounds like a good investment, right? If you’re a clever trader, you can make a lot of money in a short period of time trading on the forex market.

Quick Look: Forex Margin Requirements by Broker

• Best for Forex Trading In and Outside the U.S.: FOREX.com
• Best for Active and Global Traders: Interactive Brokers
• Best for Trading Experience: Pepperstone
• Best for Beginners: AvaTrade
• Best for Demo Accounts: eToro

Forex Brokers and Their Margin Requirements

Here’s a ranking of a few of the top forex brokerages and the margin requirements for each. If you’re thinking about getting into currency trading, you’ll need to open an account first.

Keep in mind that United States law prohibits brokers from offering American clients more than 50:1 leverage for major pairs and 20:1 for secondary pairs. In margin requirement percentages, that’s 2% and 5%, respectively.

1. Best for Forex Trading In and Outside the U.S.: FOREX.com

FOREX.com is a subsidiary of Gain Capital and it’s one of the premier places to trade currencies in the world. They offers comprehensive research and education materials on its platforms for novice currency traders. For forex veterans, the brokerage has a terrific platform and a wide variety of currency pairs, all with reasonable margin requirements.

FOREX.com offers several pairs at the lowest margin rate of 2 percent, including EUR/USD, USD/CAD and EUR/CAD. Other major pairs like USD/JPY, GBP/USD and AUD/USD have a margin rate of either 3 or 4%.

FOREX.com has 2 different account types. Standard accounts are commission-free and the only trading costs accrued are the spreads. In a commission account, you’ll get access to much better spreads, but it costs $5 per 100,000 contracts.

FOREX.com is one of the best currency trading vehicles in the game and has features beneficial for both new players and seasoned forex traders.

2. Best for Active and Global Traders: Interactive Brokers

Interactive Brokers prides itself on being a low-cost brokerage with international access. When it comes to forex trading, IB offers some of the most competitive commissions in the industry while maintaining the 50:1 and 20:1 leverage rates for major and exotic currencies, respectively. The commission schedule is listed below:

Using this table, a forex trade of 100,000 EUR/USD contracts would cost $2 total in commission. Forex traders with large accounts get even further discounted commission rates.

Interactive Brokers has an entire platform dedicated to forex trading (cleverly named FX Trader) and supports 23 different currencies. You’ll get margin rates of 2% (50:1 leverage) on USD, CAD, EUR, and DKK and 3% (33:1 leverage) on AUD, CHF, NOK, NZD, SEK.

If you don’t have permission to open a cash forex account, these margin rates could be higher. Forex account holders can trade 24 hours a day, from early Monday morning into Friday night.

3. Best for Trading Experience: Pepperstone

Pepperstone is an Australia-based forex broker that does allow you to take leverage, practice in a demo account and access a range of trading tools.

Uniquely, Pepperstone does not quote specific leverage requirements broadly for all its users. When you sign into your secure user area, you can use their margin calculator to learn what your requirements will be based on the status of your account. Based on what the platform tells you, you can take up to 30:1 leverage in a regular account and up to 500:1 leverage in a professional account.

You can also take advantage of:

• No minimum deposit to start
• Trade on MT4, MT5, cTrader, web trading and the mobile app
• Over 60 currency pairs
• Autochartist
• API trading
• Algo trading

4. Best for Beginners: AvaTrade

AvaTrade is a well-known forex broker that offers a wide range of trading instruments and advanced trading features. AvaTrade requires retail traders to possess equity of at least 50% of their used margin for MetaTrader 4 and AvaOptions accounts. Forex traders have the option to trade with a leverage of up to 30:1. This, however, varies depending on your jurisdiction as well as the asset class you are trading.

The broker also offers competitive spreads, leverage options, and a user-friendly interface to enhance the trading experience. Additionally, AvaTrade provides educational resources, market analysis, and customer support to assist traders in making informed trading decisions.

5. Best for Demo Accounts: eToro

eToro’s online platform already offers many of the world’s most popular currencies. You’ll also enjoy additional benefits, such as real-time execution of market orders and unlimited daily withdrawals.

View real-time data, access in-depth analysis tools, and be the 1st to catch the trends wherever you are. You can also try out eToro’s many innovative features completely risk-free with a $100,000 virtual portfolio.

eToro’s unique CopyTrader feature allows you to “copy” the buy and sell orders made by professional traders. In exchange, traders get a commission every time they are copied — which incentivizes professionals to make profitable trades.

What Forex Margin Requirements Mean to Traders

Choosing the best forex broker is critical to trading currencies. You need 2 currencies to trade, and you can find upward of 80 different pairs with some brokers.

However, some are traded more frequently than others, and the hierarchy is often referred to as the Big 7. The 7 most-often traded currency pairs are:

• EUR/USD (Euros to U.S. dollars)
• USD/JPY (Dollars to yen)
• GBP/USD (British pounds to dollars)
• USD/CHF (Dollars to Swiss francs)
• USD/CAD (U.S. dollars to Canadian dollars)
• AUS/USD (Australian dollar to U.S. dollar)
• NZD/USD (New Zealand dollar to U.S. dollar)

Since currency moves tend to be very small on a day-to-day basis, forex traders ramp up the leverage to turn these small moves into big gains. Leverage and margin are different terms, but both involve the same concept.

Leverage refers to building a position bigger than the capital you currently possess and margin means how much capital you must keep in your account to hold the position.

Leverage is expressed as a ratio, like 50:1 or 200:1. If a broker offers leverage of 200:1, that means you can buy $200 worth of currency for every $1 you have in your brokerage account. The international forex market is lightly regulated and it’s not rare to find leverage options at 200:1 or higher.

But thanks to Dodd-Frank legislation, United States forex traders are limited to 50:1 leverage ratios. A 50:1 ratio still far surpasses anything you’d get in the stock market, but it underscores the craziness that occurs in currency trades.

You can lose huge amounts if you don’t know what you’re doing, so don’t dive into currency trading without doing your research. Most brokers offer American forex traders leverage of 50:1 on “major” pairs and 20:1 on “exotic” pairs.

In addition to the ones listed above, a few other types of currencies are considered “major”: Swedish krona (SEK), Danish krone (DKK), and Norwegian krone (NOK). To get the 50:1 leverage ratio in the United States, both currencies must be considered major.

What to Look for in a Forex Margin Account

In the United States, forex margin requirements will be fairly standard, so you’ll need to weigh multiple options when considering a broker.

Commissions and fees are important aspects to consider, but you’ll also want a broker with low account minimums and a high number of tradable pairs. The best forex brokers will have the following characteristics:

• High leverage ratios
• Low commissions and spreads
• Low account minimums
• User-friendly trading software
• A high number of tradable currency pairs

Not all forex brokers are created equal and just because a broker has the best margin requirements, that doesn’t mean it’s the best fit for every forex trader. Make sure you pick a broker that fits your trading style and experience level.

Compare Other Forex Brokers

Understanding Forex Broker Margin Requirements

Forex markets are an exciting next step for experienced day traders, but they aren’t something inexperienced or ill-advised traders should play around with. In addition to understanding charts and indicators, forex trading also requires a strong grasp of macro events in the global political and economic spheres.

Currencies don’t have earnings reports or business documents to study, so stock trading skills might not translate in the forex market. Be sure you have a firm understanding of forex trading before you open an account.

Frequently Asked Questions