FX and Precious Metal Margin Trading 101

Leveraged investments involve high risks. Risk of loss in leveraged foreign exchange and precious metal trading can be substantial.

Unlock your capital power through leveraged FX and precious metal investments

International policies, macro-economic data and market sentiments are the key factors that constantly contribute to the fluctuating prices of FX and precious metal, and this would create investment opportunities. Many investors may bear their own superb prediction on short-term trends of FX and precious metal, yet their investment power may be limited by small capital on hand. 

This FX and precious metal margin trading guide aims to let beginners understand what is precious metal and forex leverage trading, how does it work and how to enlarge profit (and loss) and enhance the flexibility of funds by utilising its features of high leverage ratio, low trading spread. 

Leveraged forex / precious metal trading basics and risks

High leverage ratio

FX and precious metal margin trading is an investment with “leverage effect”. In general, the relevant services may provide a high leverage ratio of up to 15 times to enhance your investment exposure. You can enhance the flexibility of funds and grasp investment chances in a fluctuating market.

Low trading spread

Trading spread is one of the transaction costs an investor can’t avoid. The narrower the spread, the lower the transaction costs. FX and precious metal margin trading services with low trading spread may help you reduce the transaction costs. Example of trading spread is illustrated below: 

USD / JPY  Sell at 113.348  Buy at 113.634  Spread equals to  28.6pips

Flexible conditional order placement

Leveraged trades have long been associated with a sense of higher risk investment. However, if you can adopt the right kind of investment strategy and set up “stop limit” and “stop loss” position to react to market change in a timely manner, you may limit the scale of profit or loss to a controllable level. Surely, placing of limit orders will not necessarily limit your profit and loss at the designated price especially amid unusually market volatility. You may be required to make additional deposits under certain circumstances depending on the market volatility, hence the loss could be greater than the amount of your initial collateral. You may automate your transaction through 4 kinds of worldwide conditional order instruction:

Order instruction Step

Normal order

Perform transaction once the FX rate or precious metal price reach a pre-assigned level.

Either-Or order

Simultaneously set up two normal orders to be triggered by two separate price levels. When the price reaches either of the pre-assigned price levels, the corresponding order will be performed, while the other order will be cancelled.

If-Then order

Set up two normal orders to be performed one by one.  The “Former” order will be considered first. If the “Former” order is triggered by a pre-assigned price level and performed, the “Latter” order will then become active.

2-in-1 order 

A combination of the above. System will manage a first normal order in a “If-Then” principle. If this order is triggered and performed, then the system will manage an “Either-Or” order. Two normal orders will be considered. When the price reach either of the pre-assigned price levels, corresponding order will be performed, while the other order will be cancelled.

Leverage effect impacts on both gains and losses

While leveraged investment can amplify your potential gain, it can also inflict great loss. If your account doesn’t contain enough collateral and you are unable to deposit additional margin funds within the prescribed time, your position will be terminated to avoid any loss beyond the collateral amount. However, if the market encounter extreme fluctuation, the position is being terminated when the FX rate drops to zero. You will remain liable for any resulting deficit in your account. FX margin traders, especially beginner traders, have to be aware of the high risks of leveraged trading.

You should therefore carefully consider whether FX and precious metal margin trading is suitable for you in light of your own financial position and investment objectives. 

How does it work?

Set the collateral and leverage ratio

You may set the amount of collateral and leverage ratio according to your investment portfolio and risk tolerance level. It is worth noting that the collateral you deposit will only make up a very small proportion of your forth-coming contract value. The lower the collateral, the higher will be the leverage ratio (e.g. with a collateral as low as 10% of the contract, the leverage ratio will be as high as 10 times), and the investment outcome will be magnified accordingly

Open a position

It refers to creating a trading contract. You can open a short position (bearish) or a long position (bullish) according to your prediction to market trend

Maintain the collateral level

Collateral level (in %) = (net amount of collateral + day-to-day profit or loss) / initial contract value. You need to deposit enough collateral up to the agreed level to open new position or maintain your recent position, in order to minimise the impact of market fluctuations. Hang Seng Bank is setting the collateral level at 5%, meaning that you need to deposit new capital when your collateral is dropping below 5%

Square the position

It means to exit the market by ending your position. You sell what you had bought, or vice versa. You may square your position by means of direct order or conditional order instructions

Calculate the accrued interest

Interest is calculated according to your short position and long position on daily basis. It can be a revenue or a cost

Define the outcome

The profit (or loss) is calculated from FX movement, investment amount, accrued interest and commission

After knowing the meaning of key terms and basic principle, we provide you with 2 illustrative examples, which have 3 assumed scenarios respectively, to let you understand further on how the change of exchange rate will affect your investment returns.

Illustrative example 1: Bullish on EUR / USD

Details of your subscribed FX and precious metal margin:

Items

Units

Highest leverage ratio

15 times

Buy EUR against USD (Long position)

Buy EUR25,000 at the open EUR / USD rate of 1.45000 on day 1

Collateral

USD2,416.67

(i.e. EUR25,000 x 1.45 / 15 times)

Initial margin
level 

6.67%

Chart1: Understand your return in different scenarios

Assuming EUR / USD rises to 1.46

  1. When you subscribe

    You invested USD2,416.67 to buy EUR25,000 at a leverage ratio of 15 times

  2. If you square your position in one day

    Total profit (including profit from exchange rate change and loss from accrued interest) USD248.75

Profit from exchange rate change: (1.46 - 1.45) x EUR25,000 = USD250

Earn 0.75% interest due to long position (buy EUR), and pay 2% interest due to short position (sell USD), the accrued interest will be EUR25,000 x 1.46 x (0.75% - 2%) x 1/360 = -USD 1.25

Total profit: 250 - 1.25 = USD248.75

If you don't square your position yet, the margin level will rise to 7.35% 

Assuming EUR / USD drops to 1.4269

  1. When you subscribe

    You invested USD2,416.67 to buy EUR25,000 at a leverage ratio of 15 times

  2. If you square your position after 10+ days

    Total loss (including loss from exchange rate change and loss from accrued interest) USD604.46

Loss from exchange rate change: (1.4269 - 1.45) x EUR25,000 = -USD577.5

Accrued interest: -USD26.96

Total loss: -577.5 + (-26.96) = -USD604.46

If you don’t square your position yet, margin level will drop to below 5%. At this time, you need to provide top-up margin to maintain the level to 5%.

If EUR / USD continues to drop significantly, but you don't square your position or deposit top-up margin, the Bank will close out your position at the prevailing market price when margin level drops to 3%.

Illustrative example 2: Bearish on gold price

Details of your subscribed FX and precious metal margin:

Items

Units

Highest leverage ratio

15 times

Sell gold (XAU) against USD (short position)

Sell XAU 50oz at the open XAU / USD price of USD1,525 on day 1

Collateral

USD5,083.33 

(i.e. USD1,525 x 50oz / 15 times)

Initial margin
level 

6.67%

Chart 2: Understand your return in different scenarios

Assuming XAU / USD drops to USD1,505 per oz

  1. When you subscribe

    You invested USD5,083.33 to sell XAU 50oz at a leverage ratio of 15 times

  2. If you square your position in one day

    Total profit (including profits from exchange rate change and accrued interest) USD1,008.83

Profit from exchange rate change: (1,525 - 1,505) x 50oz = USD1,000

If no interest will be incurred through selling gold, and you earn 4.1688% for buying USD, the accrued interest with be USD1,525 x 50 x (0% + 4.1688%) x 1/360 = USD8.83

Total profit: 1,000 + 8.83 = USD1,008.83

If you don't square your position yet, the margin level will rise to 7.99%

Assuming XAU / USD rises to USD1,552 per oz

  1. When you subscribe

    You invested USD5,083.33 to sell XAU 50oz at a leverage ratio of 15 times

  2. If you square your position after 10+ days

    Total loss (including loss from exchange rate change and profit accrued interest) USD1261.70

Loss from exchange rate change: (1,525 - 1.552) x 50 oz = -USD 1,350

Accrued interest: USD88.30

Total loss: -1,350 + 88.30 = -USD1261.70

If you don’t square your position yet, margin level will drop to below 5%. At this time, you need to provide top-up margin to maintain the level to 5%.

If XAU / USD continues to rise significantly, but you don't square your position or deposit top-up margin, the Bank will close out your position at the prevailing market price when margin level drops to 3%.

Hang Seng "FX and Precious Metal Margin Trading Services"

Want to invest in FX and precious metal trading? FX and Precious Metal Margin Trading Services of Hang Seng helps you to magnify your investment power via leveraging. With a high leverage ratio, you can have an opportunity to capture the short-term market fluctuation and yield an enlarged profit or loss of up to 15 times. 

In additional, Hang Seng Bank provides a low trading spread. Speaking of online trading, the spread for gold trading can be as low as USD0.80, that of FX can be as low as 2 basis points[1] .The highest spread is limited to 3% of the buying price for your easy control of transaction cost.

The flexible "limit order" instruction automates your strategy round-the-clock, assisting you to react fast towards the ever-changing market even in tight schedule. 

Leveraged investments involve high risks. Please visit FX and Precious Metal Margin Trading Services for more information including product features and risk disclosures etc.

Open an account

Open a FX and Precious Metal Margin Trading Services account now

Open an account

Open a FX and Precious Metal Margin Trading Services account

New to Hang Seng Bank / Non-integrated account holders

Open an Integrated Account with Hang Seng Personal Banking mobile app [2] or at designated branches, and then open a FX and Precious Metal Margin Trading Services account

Existing integrated account holders

Open a FX and Precious Metal Margin Trading Services account in just a few simple steps for existing integrated account customers[3]

Existing FX and Precious Metal Margin Trading Services account holders

You are all set. Start new investment journey

Need more help?

Call our hotline

FX hotline: (852) 2882 2833

Personal customers: (852) 2882 0228

Commercial customers: (852) 2198 8000

Visit our branches

Footnote

Remark(s)

  1. Only applicable to personal customers. Terms and conditions apply to the offer.
  2. Mobile account opening is available:
    • If you are new to Hang Seng and do not hold any of the following Hang Seng Bank accounts:
      • Savings / Current Account (including passbook and statement savings accounts)
      • Integrated Account
      • Credit Card Account
      • Business Account
      • Joint-named Account
      • Mortgage Plan
      • Safe Deposit Box Services
      • Aged over 18 and under 65 with an adult HKID Card
      • A permanent Hong Kong resident
      • Not a US citizen or tax resident
      • Residing in Hong Kong
      • Currently located in Hong Kong
    • If you are existing Hang Seng customers and fulfil all the following criteria:
      • Hold at least one Hang Seng Bank account (including passbook and statement savings accounts)
      • Do not hold any Hang Seng Bank Integrated Accounts
      • Do not hold any standalone investment accounts (including Securities and Investment Fund accounts)
      • Aged over 18 and under 65
      • Residing in Hong Kong
      • Currently located in Hong Kong
  3. Integrated account is referring to the following accounts:
    • Prestige Banking
    • Preferred Banking
    • Green Banking
    • Integrated Account
    • M.I. Kid Asset Builder Account