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When you trade an FX contract with Limited Risk, you place a Guaranteed Stop and we guarantee to close your position at exactly your chosen level should the market move against you.
For Limited Risk trades the spread is widened slightly, in effect an insurance premium for risk protection. The Limited Risk premium for a major FX pair is fixed at just 3 pips. All contract sizes are set out in the contract deatails.
The margin requirement for a Limited Risk FX trade is equal to the amount which would be lost if the Stop were triggered, although you may also be asked to cover interest adjustments. |
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Example: Selling USD/JPY with Limited Risk
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You think the US dollar is due to fall against the yen, but you don't want to be caught by a sudden market move.
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Our quote is 115.45/115.48 and you decide to sell one contract (the equivalent of US$100,000) on a Limited Risk basis. With Limited Risk transactions, all the spread, plus the Limited Risk premium, is paid when the position is opened. So the position is opened at 115.46 (the middle of our quote) minus 3 (all the normal spread) minus 3 (the Limited Risk premium) = 115.40.
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Placing the Guaranteed Stop
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You decide to put your Guaranteed Stop at 117.30. So the most you can lose on the position (excluding interest adjustments) is:
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Stop level |
US$100,000 (1 contract) x 117.30 =11,730,000 |
Opening level |
US$100,000 (1 contract) x 115.40 =11,540,000 |
Maximum possible loss |
190,000 |
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Interest adjustments are applied to Limited Risk positions in exactly the same way as to our standard FX positions
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A week later, USD/JPY has risen to 116.13/116.16. You think the US dollar may now go higher and close your position by buying one contract at 116.14, the middle of our quote. (There is no spread to pay when you close a Limited Risk position; you paid all the spread on the opening.)
Your loss on the trade is calculated as follows:
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Closing transaction
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US$100,000 (1 contract) x 116.14 =11,614,000
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Opening transaction
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US$100,000 (1 contract) x 115.40 =11,540,000
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Loss on trade
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74,000
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