The spread is simply the difference between the sell price and buy price, also known as bid (sell) and ask (buy). A broker earns its money via the spread; essentially it’s a small fee that the trader pays to enter the market.
Spreads can either be fixed or variable. Like the name implies, a fixed spread stays constant while a variable spread will change in value. How much or how little a variable spread changes depends on market conditions. When volatility in the market is high, spreads fluctuate more often and during important economic announcements sometimes widen out past their normal levels. For example, during normal market conditions, the spread on EUR/USD might average 0,9 but during an economic announcement it could briefly widen out several pips. Although it is normal for spreads to widen out around news events, they generally revert to their normal levels after only a few seconds.
Finally, because Ace Markets is a 100% Straight Through Processing (STP) broker, traders enjoy the opportunity to execute directly on bank feeds, meaning that the spread the trader sees is the best offer made to Ace Markets by its many liquidity providers. If a price is available, traders will receive execution at the requested price level with no middleman or intervention whatsoever.
Ace Markets has instituted a Margin Call Policy to protect traders from losing more money than they have available in their accounts. This policy protects Ace Markets as well. Margin calls are executed when a trader’s account has less equity available than required to maintain the open trades. Specifically, when a trader’s Equity or Liquidation Value reaches 30% of the Used Margin, a Margin Call is automatically activated. The 30% figure in this example is known as the Maintenance Level. Via Ace Markets’s MT4 trading software, positions are automatically closed when this level is reached, preventing the open trades from further exposure to market conditions.
Consider the following example. Let’s assume a trader with USD 1000 opens (5) 10,000 Unit Lots (50,000 units) of EUR/USD using 100:1 (1%) leverage. As a result, 1% of 50,000 or USD 500 will be set aside as Used Margin, and the trader will have USD 500 remaining as Usable Margin. If the direction of the EUR/USD moves opposite the trader’s position, and the Equity (Liquidation Value) reaches USD 150 (30% of 500) from the original USD1000 deposit, this would result in a breach of the 30% maintenance level. As a result, the position will be automatically closed in order to protect the client from losing any more of the remaining balance, and possibly falling into negative territory.
Ace Markets may, at its own discretion, close any or all open positions in a trader’s account in the event that available funds fall below the minimum required equity.
When multiple trades or positions appear in the account during a Margin Call liquidation, Ace Markets reserves the right to close the position(s) with the highest floating loss. The largest positions are closed prior to the smaller positions, however Ace Markets may, at its discretion, first close only the positions that carry the most risk. Even though the MT4 trading platform keeps track of Used and Free Margin, it’s the trader’s responsibility to monitor balances at all times.
Finally, two additional safeguards are in place to protect both the trader as well as Ace Markets. The first of these safeguards relates to the placement of new orders during liquidation. Once an account reaches the Margin Call level, that is when the Equity reaches 100% of Used Margin, the trader will only be able to new enter orders to hedge current positions; it will not be possible to open a new position. The second safety measure takes places once the Equity reaches 50% of Used Margin. In this case the Customer will not be able to enter any new positions, it will only be possible to exit exiting trades.
For more guidance on our margin call polices and procedures, don’t hesitate to contact an Ace Markets staff member.
Swap rates, also known as swaps, represent small credits or debits to the the trading account and are applied to trades held past 22:00 GMT. Whenever a position is held past this time, the account will be credited or debited a small amount.
Ace Markets swap rates can be viewed within the MT4 platform. Simply right click on any category in the Market Watch window, then select Symbols. You will be presented with a window that displays the different products available to trade at Ace Markets. Once you’ve found the desired pair, left click on it, and then navigate to Properties in order to see the current swap values for long and short trades.
Leverage is a ratio that tells traders how many times their margin deposit can be magnified or used to open a single trade. For example, let’s assume a trader has been given 100:1 leverage. In order to open a 0.1 lot (10,000 units of currency) GBP/USD trade, the trader must only set aside 1% of the current GBP/USD value. Assuming the account is based in US dollars, if GBP/USD is trading at 1.6507, then the trader’s Used Margin is $165.07. This number was derived by multiplying the GBP/USD value (1.6507) by the lot size (10,000), which equals 16,507. 1% of $16,507 is $165.07.
Leverage is often referred to as a double edged sword. As can be seen in the above example, rather than committing the full $10,000 to open this trade, one must only set aside a small percentage. The trader, however, can take advantage of the entire price movement of the 10,000 units, without putting up the full value. Although this can help to magnify profits, it means losses are magnified as well. The potential loss of money due to leverage is the trade off that traders assume when they trade in the forex market.