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How do I calculate the margin required on hedged positions?

At Alpari, our margin requirements vary based on the denomination of your account (they're not just a fixed amount in USD). Let's look at an example to see how this works:

  1. 1

    To calculate the margin required to open multiple positions, you'll first need to calculate the volume-weighted price (Pcp in the formula):

    Formula: Pср = (Open Price 1 × Lot 1 + Open Price 2 × Lot 2 + ... + Open Price X × Lot X) / (Lot 1 + Lot 2 + ... + Lot X)

    • Pср: the volume-weighted average price
    • Open Price 1: the price at which the first position is opened
    • Open Price 2: the price at which the second position is opened
    • Open Price X: the price at which Position X is opened
    • Lot 1, 2,...Х : the volume of Position X in lots
  2. 2

    Next, we'll need to calculate the amount of margin required for the hedged trading volume:

    Formula: M1 = (Pср × Lots х 100,000) / Leverage / 2

    • Pср: the volume-weighted average price, which we just showed you how to calculate
    • Lots: the total hedged volume, in lots
  3. 3

    Now, we'll calculate the margin required for the unhedged trading volume:

    Formula: M2 = (Pср × Lots х 100,000) / Leverage

    • Pср: the volume-weighted average price
    • Lots: the total unhedged volume, in lots
  4. 4

    Now, just add up the margin required for the hedged and unhedged trading volume:

    Formula: Margin = M1 + M2

Example: In this example, we'll look at how to calculate the margin required to open multiple positions on currency pairs.

Three positions are opened:

For standard.mt4 accounts denominated in USD, the Leverage is 1:500

Calculation data for the three trades:

  • SELL 0.5 GBPUSD at 1.70450
  • BUY 0.8 GBPUSD at 1.70200
  • SELL 1.4 GBPUSD at 1.70610
  1. 1

    We'll start by calculating the volume-weighted price:

    Pср = (1.70450 х 0.5 + 1.70200 х 0.8 + 1.70610 х 1.4) / (0.5 + 0.8 + 1.4) = 1.70459 GBPUSD

  2. 2

    Next, we'll calculate the margin for the hedged volume. Here, there are 1.6 lots of hedged volume (0.8 × 2 = 1.6 lots)

    М1 = (1.70459 х 1.6 х 100,000) / 500 / 2 = 272.7344 USD

  3. 3

    Now, we'll calculate the margin for the remaining (unhedged) volume.

    М2 = ((2.7-1.6) x 1.70459 х 100,000) / 500 = 375.0098 USD

  4. 4

    Finally, we'll calculate the total margin required.

    Margin = 272.7344 + 375.0098 = 647.7442 USD

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