Foreign Exchange Calculator

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Foreign Exchange Calculator Work Page

Click on the Calculators tool bar button to display the various calculators included with Your SOFTWARE's modules:

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Click on the FX Calculator command to open the Foreign Exchange Calculator floating window.

Foreign Exchange Calculator

The FX Calculator is contained in a floating window.

It has a Master Data area where common information is entered, and five tabbed pages are where specific calculations are performed and results displayed.

Master Data

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The Master Data section of the dialog box contains data entry boxes that apply to the account or trade that the specific calculations will apply to:

Primary Account Currency

The Primary Account Currency is the currency that the trading account is held in and is the currency that each calculation's final result will be converted into.

Often the calculations are first required to be performed using the Base and Quote currencies, the results of that calculation must then be converted into the Primary Account Currency, if it is different from either the base or quote currencies.

Once selected the currency pair will determine the population of the Base to Primary and Quote to Primary Rates.

Currency Pairs

Select the Currency Pair that the transaction will use from the drop down menu.

The Currency Pair does not need to include the Primary Account Currency type.

The first currency is the Base currency, the second currency is the Quote, or Counter, currency.

Base to Primary Rate

This is the rate used to convert results from the Base currency to the Primary currency.

Quote to Primary Rate

This is the rate used to convert results from the Quote currency to the Primary currency.

Date of most recent Data

The Last Currency Rate Date shows the date of the last rate retrieved from the server.

To refresh the data, click the Update button.

Margin Calculator

fxcalcs_1margin.gifMargin Trading allows traders to enter into positions larger than their actual account balance.

This is due to the broker allowing the trade to be entered into subject to a margin agreement. The terms of margin agreements differ but they all require that sufficient security (collateral) is retained in the trader's account (or added to the account) so that the broker is not left with clients that have a negative trading account balance.

From the traders point of view, margins allow for significant leverage i.e. larger positions can be taken and therefore the potential to generate large profits relative to the amount invested.

The amount of margin required by the broker depends on the level of leverage that the broker is willing to extend to the trader, and the size of the proposed transaction.

Traders enter the Number of Units to be traded in the proposed transaction.

Then they enter the Margin Ratio that has been agreed to with their broker.

The following leverage amounts are available for selection from the drop down menu:

Leverage

1:1

5:1

10:1

20:1

30:1

40:1

50:1

Margin Required

100% *

50%

10%

5%

33.333%

2.5%

2%

The table shows the percentage of margin required for each trade.

For example, an account with a leverage level of 20:1 would require a margin of 5% of the proposed trade to be retained in the account while the trade is open.

* A leverage ratio of 1:1 is effectively the same as not having a margin agreement, as 100% of the proposed trade will be required to be in the traders account before the trade can be entered, i.e. the trader will be required to have $50,000 in the trading account in order to enter a trade worth $50,000 - therefore no leverage.

The Margin calculator will then calculate the Margin Used, that is how much of the trader's account will be required to be retained in the account to cover the risk to the broker.

The Margin Used will be displayed in the Primary Account Currency and will be calculated using the Base to Primary Rate, both of these are set in the Master Data area, see above.

Margin Call Calculator

While the broker will require a specific amount of money to be retained in the traders account prior to entering the trade based on the leverage level previously described in the Margin calculator section, this amount will vary over the time that the position is open and its value relative to the entry level goes up and down.

As the value of the position fluctuates up or down, the broker will recalculate the margin required and the amount required to be retained in the trader's account will vary depending on the current valuation of the position.

By agreement, if the amount of money in the account falls below a certain level, the broker will then close all of the trader's open positions, this will protect the broker from greater losses when the value of the collateral begins to be exceeded by the magnitude of the loss.

This forced sale can often be disadvantageous to the trader.

For this reason, from time to time it is necessary for traders to use the FX pair's current value to re-calculate how susceptible to Margin Call their positions are.

The FX Calculator's Margin Call calculator will calculate the rate at which a margin call will be triggered for each position, and display the Total Loss in the Primary Account Currency:

fxcalcs_2margincall.gif

User Entry

Trader's Account Balance

The Balance is the amount of money in the trading account at the time that the trade (position) was entered.

The Balance is expressed in the Primary Account Currency and the Quote currency.

Opening Rate

Users enter the trade's Entry Price, i.e. the exchange rate level at which the position was opened.

Enter the Opening Rate must be entered using the same format as the rates in the Master Data section, see above.

Action

Users enter the direction of the trade, i.e. Buy or Sell.

Number of Units

Users enter the Number of Units in the base currency for the trade.

The maximum Number of Units is calculated based on the Margin Ratio and Balance.

If the current balance is insufficient to cover the required margin the following message will appear:

fxcalcs_2marginexceed.gif

This calculation is the same as that independently carried out in the Units Available calculation, see its description below.

Margin Ratio

Users enter the ratio for maintaining margin required by their broker. Refer to the description above for details on the contents of the drop-down menu.

Calculation/Result

Margin Call Rate

The calculator uses the Balance, the Opening Rate, Number of Units, Margin Ratio and direction of trade (Action) to calculate the FX pair price level at which a margin call will occur.

The Margin Call Rate gives an indication of the actual FX pair price level of the Margin Call, i.e. where further margin would be required and/or where the trade would be closed.

The Margin Call Rate will be Never (-"negative value") when the current funds in the Balance are more than sufficient to maintain the margin regardless of price.

fxcalcs_2marginnever.gif

The negative value is the actual FX pair price level that would be required for a margin call to occur, since it is below zero this level can never be reached and hence the Total Loss value is N/A (not applicable).

Note - This will never appear on a short position as there is always risk on the upside, only on long trades.

Total Loss

This is indicative of the value of loss should an exit occur at the point of the Margin Call.

The Total Loss amount is displayed in the Primary Account Currency.

FX Interest Calculator

Foreign exchange brokers lend interest on the positions traders take, and pay interest on amounts in the trader's account.

The rates are different, with the Lent Interest rate always being slightly higher than the Borrow Interest rate.

The interest is calculated based on the time that the positions are held, and the rate of interest for the type of currency.

The FX Calculator's Interest calculator will calculate the interest earned, or payable, for each position, and display the amount in the Primary Account Currency:

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A positive Interest Earned amount will be credited to the trader's account.

A negative Interest Earned amount will be debited to the trader's account.

Note - The FX Interest Calculator used hourly intervals, while some Brokers calculate interest using alternative time-frames such as daily, minutes and even seconds, for this reason the calculator's interest figures are indicative only.

Profit Calculator

The FX Calculator's Profit calculator allows traders to calculate the profit of a trade, using either real or hypothetical values, and display the amount of profit or loss in the Primary Account Currency:

 

The Currency Pair setting in the Master Data section of the dialog will determine which currencies are being traded.

Users enter real or hypothetical Opening and Closing Rates and then indicate the direction of the trade (Buy or Sell) from the Action drop down menu.

Users also enter the Number of Units, i.e. the amount of the quote (counter) currency they are buying or selling.

Units Available Calculator

The FX Calculator's Units Available calculator allows traders to determine how many Units of currency can be purchased for a given amount of margin.

In other words, traders can determine how many units of the quote (counter) currency can be purchased for a given amount of margin that will be required to be retained in their trading account.

Traders enter the amount of Margin that they will allocate to the trade, and then the Margin Ratio that is currently agreed to with their broker:

fxcalcs_5unitsavailb.gif

The Currency Pair setting in the Master Data section of the dialog will determine which currencies are being traded.

The calculator indicate the Maximum Number of Units of the quote (counter) currency that can be purchased or sold at the stated level of leverage.

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