FX Forward margin – SaxoConnect

FX forward margin is a margin requirement on the interest rate risk inherent in FX forwards and FX swaps.

The interest rate margin requirement is applied in addition to the standard margin requirement applied to FX spot instruments on the notional exposure.

The calculation has the following characteristics:

Interest rate margin requirement is calculated per currency pair
The interest rate differential is shifted by 1% and then scaled by time to maturity
All currency pairs use the same shift of 1%
Netting across value dates in currency pair

FX forward outright example

Trade assumptions:

1M EURUSD forward with value date in 3 months.
Spot price = 1.10998
Forward price = 1.1120

1M x 1.1120 x 3/12 x 1% = 2,700 USD

2,700 USD is applied in addition to the standard margin requirement. Assuming that is 5% in EURUSD:

(1M EUR x 5% x 1.10998) + 2,700 USD = 58,199 USD

Do refer to your Trading Conditions for the margin rates. Interest Rate Margin Requirement will not be applicable if it's not shown in your Trading Conditions.

FX swap example

The margin is calculated in a similar way on an FX swap, meaning on each of the FX forward positions in the portfolio. However, long positions are netted with short positions.

Trade assumptions:

Assume the same long 1M EURUSD 3-month forward as before, assume that we also have:

Short 1M EURUSD forward with value date in 6 months
Forward price = 1.1210

This new position alone would have a margin requirement of:

1M x 1.1210 x 6/12 x 1% = 5,605 USD

However, the short position is netted with the long position, such that the margin becomes:

|2,700 USD – 5,605 USD| = |-2,905 USD| = 2,905 USD

Therefore, the margin requirement is the 3-month difference between the value dates.

The notional exposure is 0, so it is the full margin requirement that becomes 2,905 USD in this scenario.