Electronic Communications Network (ECN)
Defined as the electronic matching of bids and offers using liquidity pools, ECN is a popular alternative for forex traders. Traditionally traders would be required to place an order with a broker, which would then be rerouted to a liquidity provider or bank. The broker would place a charge on this routing. This would increase the spread that the client would receive. ECN however means that the client will place an order through the broker, and the order will go directly to the liquidity provider. This usually results in a lower / tighter spread. The broker will charge a commission on top of the ECN spread.
*The use of leverage can magnify profits but it can do the same for losses. Forex and CFDs are leveraged products, involve a high level of risk and can result in the loss of more than your invested capital. Please consult our full risk warning notice.
Leverage allows you to hold a larger position than the initial cash deposit. Your initial outlay is supplemented to increase the value of your underlying investment. The higher the leverage, the larger the position the trader can execute for the same amount of the initial deposit.
For example, a client using 100:1 leverage could hold a position in the forex market of $100,000 with a margin of $1,000. For a 200:1 leverage, the client would need a $500 margin to hold the same position.
Leverage increases the potential of high returns when the market moves in their favour. However, please note that leverage will act against you when the market moves in the opposite direction to your prediction.
Different leverage levels apply to different account types.
When an investor opens an account with a broker, an initial deposit is required in order to open a position in the market. The required cash deposit will act as a deposit to cover any credit risk. Depending on the agreement, the investor could be able to leverage up to a certain limit.
The margin requirement for a forex trade is calculated using the following formula:
Margin = (Lot Size * Contract Size * Opening Price) / Leverage
The examples below are based on a Standard/Classic account with a leverage of 100:1.
Margin requirement for one standard contract position in EUR/USD at 1.2500 is calculated as follows:
Margin = (1 * 100,000 * $1.2500) / (100) = $1250.00
Margin requirement of one standard contract position in Gold at 1579.01 is calculated as follows:
Margin = (1 * 100 * $1579.01) / (100) = $1579.01
Margin requirement for one standard contract position in Silver at 28.70 is calculated as follows:
Margin = (1 * 5000 * $28.70) / (100) = $1435.00
Note: Interest is not required to be paid on the borrowed amount, but if the investor decides to hold his position overnight, interest will be charged as the rolled over rates on the total positions held.
Margin Call is a level set by a brokerage that defines the minimum amount of money required to trade in the market. When your account falls below the margin call level, you will need to make an additional deposit to maintain your positions. Alternatively, you can close some of your positions to reduce your required margin. At Blackwell Global, Margin Call is set at 80%.
Stop Out Level
In the event you are unable to maintain sufficient funds in your account after hitting Margin Call, and if your account value depreciates to the Stop Out level, all your open positions will be closed automatically to prevent further loss to your capital. At Blackwell Global, Stop Out level is set at 50%.
Often referred to as Rollover Interest, swaps are charged when holding onto a position overnight due to the difference in interest rates between the base currency and the quote currency.
Blackwell Global deals forex trading on a “spot” basis. All trades are settled in two business days from inception as per market convention. Swaps are automatically calculated and settled at 21:59 GMT (Server Time 22:59) on a daily basis and Blackwell Global does not arrange for physical delivery. Any open positions held from Wednesday to Friday on a trade date basis will be charged three times the value.
The extra payment is to cover the interest that would normally have been charged on Saturday and Sunday when the market is closed.