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English translation: the cost of the deposit required for foreign exchange investment

GLOSSARY ENTRY (DERIVED FROM QUESTION BELOW)
English term or phrase:FX margin cost
Selected answer:the cost of the deposit required for foreign exchange investment
Entered by: Charles Davis

12:44 Jun 12, 2017
English language (monolingual) [PRO]
Bus/Financial - Finance (general) / Credit market
English term or phrase: FX margin cost
It's part of a list of terms relating to illiquid stock positions:

Trading Timestamp
Market place
FX Margin Cost
Execution type

I'm not sure what it means.
Can you help?
Thank you!
Laura Vinti
United States
Local time: 03:37
the cost of the deposit required for foreign exchange investment
Explanation:
The word "margin" is sometimes used to refer to what is effectively a fee or commission charged for currency exchange, as a percentage known as the margin rate. As well as the source Phil has cited, it is used in that way here, for example:

"Currency Exchange Margin Rate – What Is It?
[...]
When a bank or currency exchange broker then quotes an exchange rate to you as a customer, they will take the interbank rate and will add an amount, which is called the margin rate.
To explain, if the interbank rate for converting Pounds to Euros is 1.18, the exchange rate quoted to you by a bank or broker may be 1.16 Euros to the Pound. This means the margin rate you have been charged is 0.02 Euros for every pound you exchange."
http://moneyhighstreet.com/currency-exchange-margin-rate-wha...

If the context were international trading involving currency exchange costs, that would be the meaning of "fx margin costs". However, it seems to me much more likely that in the context of stock positions we are dealing with foreign currency trading: the buying and selling of currencies as an investment, in the same way one buys and sells securities. In this context, "margin" has a different meaning, the one involved in James's reference:

"In finance, margin is collateral that the holder of a financial instrument has to deposit with a counterparty (most often their broker or an exchange) to cover some or all of the credit risk the holder poses for the counterparty."
https://en.wikipedia.org/wiki/Margin_(finance)

"How does margin trading in the forex market work? [...]
Before the investor can place a trade, he or she must first deposit money into the margin account. The amount that needs to be deposited depends on the margin percentage that is agreed upon between the investor and the broker. For accounts that will be trading in 100,000 currency units or more, the margin percentage is usually either 1% or 2%. So, for an investor who wants to trade $100,000, a 1% margin would mean that $1,000 needs to be deposited into the account. The remaining 99% is provided by the broker. No interest is paid directly on this borrowed amount, but if the investor does not close his or her position before the delivery date, it will have to be rolled over, and interest may be charged depending on the investor's position (long or short) and the short-term interest rates of the underlying currencies.
In a margin account, the broker uses the $1,000 as security. If the investor's position worsens and his or her losses approach $1,000, the broker may initiate a margin call. When this occurs, the broker will usually instruct the investor to either deposit more money into the account or to close out the position to limit the risk to both parties."
http://www.investopedia.com/ask/answers/06/forexmargin.asp

So the margin cost is the amount of money that the investor has to keep in the margin account for the relevant trades. This amount depends on the size of the trade, the currency pair and the leverage rate (the proportion of the sum invested). Here are margin costs for various currency pairs:

"Table 1: Margin costs vary by currency pair
[initial margin cost per standard lot (100.000) at 100:1 leverage]"
Forex Trading, ed. Laura Sether
https://books.google.es/books?id=Tylr_ua-XKgC&pg=PT133#v=one...
Selected response from:

Charles Davis
Spain
Local time: 09:37
Grading comment
Thanks!!
4 KudoZ points were awarded for this answer



SUMMARY OF ALL EXPLANATIONS PROVIDED
4 +3[see my explanation]
philgoddard
4 +1the cost of the deposit required for foreign exchange investment
Charles Davis
Summary of reference entries provided
How to work out an FX margin
James A. Walsh

  

Answers


1 hr   confidence: Answerer confidence 4/5Answerer confidence 4/5 peer agreement (net): +3
fx margin cost
[see my explanation]


Explanation:
FX is foreign exchange.

It's hard to know who is charging the margin in your context, but it's probably a bank. For example, when you transfer money from one country to another, the bank makes money by giving you less than the official exchange rate.

Example sentence(s):
  • Particularly where a transaction fee is also being disclosed by the remitter, some customers may not be aware that a FX margin is charged additionally.

    Reference: http://www.treasury.govt.nz/publications/informationreleases...
philgoddard
United States
Specializes in field
Native speaker of: English
PRO pts in category: 15

Peer comments on this answer (and responses from the answerer)
agree  writeaway: yes BUT you really should get back to posting your answer in the answer line. there is plenty of room to enter 'foreign exchange'. [see my explanation], [see my translation] is/was against the rules due to glossary issues/post answer and explain below!
17 mins
  -> This is English to English, and the question is not just "FX". It requires an explanation rather than a translation, and there's no way of fitting that into the limited space available. But thanks for agreeing.
agree  Yasutomo Kanazawa
25 mins
agree  acetran
13 hrs
Login to enter a peer comment (or grade)

18 hrs   confidence: Answerer confidence 4/5Answerer confidence 4/5 peer agreement (net): +1
fx margin cost
the cost of the deposit required for foreign exchange investment


Explanation:
The word "margin" is sometimes used to refer to what is effectively a fee or commission charged for currency exchange, as a percentage known as the margin rate. As well as the source Phil has cited, it is used in that way here, for example:

"Currency Exchange Margin Rate – What Is It?
[...]
When a bank or currency exchange broker then quotes an exchange rate to you as a customer, they will take the interbank rate and will add an amount, which is called the margin rate.
To explain, if the interbank rate for converting Pounds to Euros is 1.18, the exchange rate quoted to you by a bank or broker may be 1.16 Euros to the Pound. This means the margin rate you have been charged is 0.02 Euros for every pound you exchange."
http://moneyhighstreet.com/currency-exchange-margin-rate-wha...

If the context were international trading involving currency exchange costs, that would be the meaning of "fx margin costs". However, it seems to me much more likely that in the context of stock positions we are dealing with foreign currency trading: the buying and selling of currencies as an investment, in the same way one buys and sells securities. In this context, "margin" has a different meaning, the one involved in James's reference:

"In finance, margin is collateral that the holder of a financial instrument has to deposit with a counterparty (most often their broker or an exchange) to cover some or all of the credit risk the holder poses for the counterparty."
https://en.wikipedia.org/wiki/Margin_(finance)

"How does margin trading in the forex market work? [...]
Before the investor can place a trade, he or she must first deposit money into the margin account. The amount that needs to be deposited depends on the margin percentage that is agreed upon between the investor and the broker. For accounts that will be trading in 100,000 currency units or more, the margin percentage is usually either 1% or 2%. So, for an investor who wants to trade $100,000, a 1% margin would mean that $1,000 needs to be deposited into the account. The remaining 99% is provided by the broker. No interest is paid directly on this borrowed amount, but if the investor does not close his or her position before the delivery date, it will have to be rolled over, and interest may be charged depending on the investor's position (long or short) and the short-term interest rates of the underlying currencies.
In a margin account, the broker uses the $1,000 as security. If the investor's position worsens and his or her losses approach $1,000, the broker may initiate a margin call. When this occurs, the broker will usually instruct the investor to either deposit more money into the account or to close out the position to limit the risk to both parties."
http://www.investopedia.com/ask/answers/06/forexmargin.asp

So the margin cost is the amount of money that the investor has to keep in the margin account for the relevant trades. This amount depends on the size of the trade, the currency pair and the leverage rate (the proportion of the sum invested). Here are margin costs for various currency pairs:

"Table 1: Margin costs vary by currency pair
[initial margin cost per standard lot (100.000) at 100:1 leverage]"
Forex Trading, ed. Laura Sether
https://books.google.es/books?id=Tylr_ua-XKgC&pg=PT133#v=one...

Charles Davis
Spain
Local time: 09:37
Native speaker of: English
PRO pts in category: 82
Grading comment
Thanks!!

Peer comments on this answer (and responses from the answerer)
agree  James A. Walsh: Sound references, as ever. Definitely think this is it.
2 hrs
  -> Thanks, James ;-)
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Reference comments


2 hrs peer agreement (net): +2
Reference: How to work out an FX margin

Reference information:
This site has a good explanation of how to work out an FX margin using its margin calculator, which you may find helpful.

--------------------------------------------------
Note added at 8 hrs (2017-06-12 20:58:15 GMT)
--------------------------------------------------

"With the FxPro Margin Calculator you can calculate exactly how much margin is required in order to guarantee a position that you would like to open. Doing so helps you determine whether you should reduce the lot size you are trading, or adjust the leverage you are using, taking into account your account balance. Select your trading instrument, your trade size, leverage and account currency, and click ‘Calculate’. Our Margin Calculator will do the rest.
For forex, the margin calculation works as follows:
Required Margin = Trade Size / Leverage * account currency exchange rate (if different from the base currency of the pair traded)

Example:

Trading 3 lots of EUR/USD using 1:200 leverage with an account denominated in USD.

Trade size: 300,000
Account currency exchange rate: 1.13798
Required Margin: 300,000 / 200 * 1.13798 = $1706.97"
http://www.fxpro.co.uk/trading/calculators/margin#


    Reference: http://www.fxpro.co.uk/trading/calculators/margin#
James A. Walsh
Spain
Specializes in field
Native speaker of: Native in EnglishEnglish, Native in SpanishSpanish
Note to reference poster
Asker: Thank you for posting this useful explanation!


Peer comments on this reference comment (and responses from the reference poster)
agree  acetran
12 hrs
  -> Thanks, acetran.
agree  Charles Davis: I think this is the kind of margin they're talking about.
17 hrs
  -> Thanks, Charles. Yeah, I think so too.
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