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 Maintenance Margin
 
 3/11/2007 8:20:42 PM
User is offlinefrancesco
66 posts
www.tescari.com




Maintenance Margin
 Modified By admin  on 3/12/2007 9:26:43 AM)

Most trading platforms require a "maintenance margin" be deposited by the trader parallel to the margins depostited for actual trades. The main reason for this is to ensure the necessary amount is available in the event of a "gap" or "slippage" in rates. Maintenance margins are also used to cover administrative costs.

When a trader sets a Stop-Loss rate, most market makers cannot guarantee the the stop-loss will acutally be used. For example, if the market for a particular counter currency had a vertical fall from 1.1850 to 1.1900 between the close and opening of the market, and the trader had a stop.loss of 1.1875, at which rate would the deal be closed? No matter how the rate slippage is accounted for, the trader would probably be required to add-up on his initial margin to finalize the automatically closed transation. The funds from the maintenance margein might be used for this purpose.

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