What is Margin Forex?

Margin FX transactions are over-the-counter (“OTC”) derivatives. "Foreign exchange" generally refers to trading in foreign exchange currencies in the spot (cash) markets and is known as the physical. Whereas Margin Forex allows the investor an opportunity to trade foreign exchange on a margined basis as opposed to paying for the full value of the physical currency. Basically, there is no physical delivery of the currency, trades are cash adjusted or cash settled. In other words, investors are required to lodge funds as security (initial margins-normally 2% of transaction value for majors) and to cover all net debit (ie loss) adverse market movement (variation margins). Trades are monitored on a mark-to-market basis to account for any market movements on open positions. When clients are making a loss to an extent that they no longer meet the margin requirements they are required to “top up” their accounts or to "close out" their position.

Foreign exchange is essentially about exchanging one currency for another at an agreed rate. Accordingly, in every exchange rate quotation, there are two currencies. The exchange rate is the price of one currency (the “base” currency) in terms of another currency (the “terms” currency) such as the price of the Australian dollar in terms of the US dollar. For example, if the current exchange rate for the Australian dollar as against the US dollar is AUD/USD 0.7000, this means that one Australian dollar is equal to or can be exchanged for 70 US cents.